Write off a portion of your mortgage or rent for a home office.
One of the benefits of a home-based business lies in the opportunity to deduct the cost of maintaining your home office on your federal tax return. Internal Revenue Service (IRS) regulations permit you to deduct a portion of your rent or mortgage and your utility bills for your home office based on how much of your house is exclusively dedicated to business use. Use IRS Form 8829 to report and account for your home office expenses.
Instructions
1. Write the square footage of the space that you use for your business on line one of the form. You can calculate the square footage of the space by multiplying the width of the area in feet by the length of the area in feet. For example, if your business space is 15 feet in width and 12 feet in length, your square footage would be 180 square feet (15 times 12 equals 180).
2. Write the square footage of your entire home on line two of the form. If you don't know your home's square footage, you can estimate it by measuring the width of your entire home from the outside and the length of your entire home from the outside and multiplying those two numbers together. For example, if you live in house that measures 40 feet by 50 feet, your total square footage would be 2000 square feet (40 times 50 equals 2000).
3. Calculate the percentage of your home used for your business by dividing the square footage of your business space by the square footage of your entire home, and then multiplying the resulting number by 100. In our example, 180 square feet of business space divided by 2000 square feet of total living space would mean that nine percent of your home was dedicated to business use (180 divided 2000 equals .09 times100 equals 9 percent). Write the resulting percentage on line three of the form.
4. Transfer the number from line three of the form to line seven of the form, unless you operate a daycare business in your home that uses some of the home exclusively for business and other parts of the home for both business and personal purposes. In that case, see the Form 8829 instructions (see the Resources section) for details on make this calculation.
5. List the indicated household expenses on lines nine through 21 of the form, and then add all of those figures together and write the sum on line 22 of the form. Then multiply the number on line 22 by the percentage you calculated on line nine and enter the result on line 23. For example, if your total home expenses were $11,000 and the percentage of your home used for business was 9 percent, the deductible portion of your expenses would be $990 (11,000 times .09 equals 990).
6. Add your remaining business expenses as indicated on the form on lines 24 through 34, then calculate your final allowable deduction on line 35 by subtracting the amount on line 34 from the amount on line 33.
7. Calculate how much of the depreciation of your home can be deducted for your business in "Part III" of the form by completing lines 36 through 38, then multiplying the figure from line 38 by the percentage of your home dedicated to business as entered on line seven. Write the result on line 39. In our example, if the home depreciated by $3,000 and the deductible percentage was 9 percent, then $270 of the depreciation would be deductible for the business (3000 times .09 equals 270).
8. Indicate any disallowed expenses from the current year that may be carried over into the following year in "Part IV" of the form by following the instructions for your personal situation.
Tags: square footage, your home, your business, entire home, home office