Your home-based business is in an exclusive tax situation. Your home business may benefit from all the usual tax deductions, but some work differently, and others are for domestic purposes.
Your business can receive two types of deductions. You can deduct for yourself and for all other businesses, as well as deductions for which you must be considered a home-based business. The maximum deduction for domestic activities concerns your retail space, and a two-step process allows you to deduct the use of your space.
When working from home, you must demonstrate that the space you use for your business is:
Once you are sure that your local commercial space is eligible for the deduction, you can determine which method to use and which expenses you can claim.
Before you start deducting these tax deductions for your home business, you must complete the IRS classification according to which your home is the primary place of business.
If your home is the only home office, it's easy to prove it's your main office. But if you work at home or in the office, consider two factors:
The IRS considers these two factors; therefore, you must support the statement that your home is the principal place of business. Watch what you do for your home-based business (work on your computer, consult with your customers) and spend time at home in front of an office.
The IRS has announced a new, more straightforward way of calculating home office space deductions. You can deduct the costs of domestic activities by using the "normal and exclusive" space for local activities using the old calculation or the new, more straightforward method. If you have less space, this simple method can save you time and avoid mistakes.
The simple method is preferable for small communities. You can deduct $5 per square up to 300 square meters, up to a maximum of $1,500 per year.
The benefit of this method of calculation is that it is not necessary to track all family expenses and perform calculations to calculate the percentage. It is not possible to deduct depreciation with the simplified method, but it is a method for a small area.
This article aids you through the process of calculating your family business deduction using Form 8829 or the Simplified Method.
In short, the process involves:
Once you have decided to use the exact method to calculate the deduction for your home-based business, it's time to start the business. To correctly calculate the deductions for the use of your home-based business, you must complete Form 8829:
There is a myth that the IRS is going around looking for home-based businesses. Although this is not true, having a home business means that you have to be ready if the IRS decides to inspect your business. The IRS wants to make sure that it does not violate the obligation to use its home office "regularly and exclusively" for commercial purposes.
Deductions for internal activities are limited. It is possible to deduct internal business expenses to reduce the company's revenues during the year, but it is not possible to make such deductions in the event of loss of business. Calculating this limit can be tricky, but many resources can help you complete it.
If you operate your home business, under certain circumstances, you can deduct car expenses for round trips for work purposes.
If you manage two internal activities, you can deduct the tax on the domestic operations of both companies. However, there are laid down rules that you must follow.
You can demand a home office deduction if you have a dedicated workspace in your home for an office. This area cannot be used for personal activities. To be able to apply for two different business activities, office space should be considered as the central place of business for both.
If both companies meet the criteria for home office deductions, you must submit Form 8829: Expenses for the commercial use of your home separately for each business.
To deduct national business expenses, divide the costs between the two companies. Base your division on the use you make of your home office for each company. You must manually divide the office spaces and enter them as if you had two separate offices. The total square footage sent to each company must not exceed the total number of square feet you would send if you only have one home-based business. You can choose to divide the space by the time or use of the area.
You can also use the simplified method to deduct your home office. In this case, it is limited to a maximum of 300 square meters for all companies combined. Spread 300 square meters between your businesses logically. Do not give a company square footage than it uses.
LLOYD J CAZES CPA