| If you decide that it's worthwhile to take the home office deduction, you need to determine exactly what to deduct, and how to calculate the deduction. Follow these steps:
1. Go through your records.
It is very important to keep receipts for all of your home office expenses. Keep them for such things as replacing the carpet in your office space and for office furniture and equipment. You can depreciate (deduct over a period of time) or perhaps claim a Section 179 deduction (write off immediately) these expenses as capital assets. Your records should also include repairs made to your home, and office equipment purchases.
If you operate a day care center in your home, you also need to record the hours you operate, and the number of weeks in the year that you are open for business.
2. Determine your indirect expenses
Indirect expenses include your utility bills, mortgage interest or rent, real estate taxes, repairs, trash removal, and maintenance. To calculate the deduction for indirect expenses, you need to divide your office's square footage by your home's square footage to get a percentage. You apply this percentage to your indirect expenses.
3. Determine your direct expenses
Direct expenses are completely business-related, such as the purchase of a computer, or the installation of bookshelves in your office. Direct expenses are not subject to the business use percentage.
If you have one phone line in your home, the monthly charge for that phone line is not deductible, but long-distance business calls from that line are considered to be a direct expense. If you put a second line in your house that you use regularly and exclusively for the business, you can deduct the expenses for that line as a direct expense.
4. Calculate your home's depreciation
If you own your home, you also need to know your home's purchase price and the cost of all of the improvements you've done, the value of the land, and the fair market value of your home. This information is necessary to determine the basis. You apply your home office percentage to the basis to determine the depreciation.
5. Categorize your expenses
After you've gathered all the bills and receipts for your business expenses, use the list that follows to categorize them, then total each category so you can enter the expenses in the appropriate places on your tax return.
Suggested Expense Categories:
Advertising
Bad debts
Car and truck expenses
Commissions and fees
Depletion
Depreciation
Employee benefit Programs
Insurance (other than health)
Interest (mortgage, equipment, business credit cards, loans)
Legal and professional services
Office expenses
Pension and profit-sharing plans
Rent or lease (vehicles, machinery, equipment, office space)
Repairs and maintenance
Supplies (not used in creating objects which are sold)
Taxes and licenses
Travel, meals and entertainment
Utilities
Wages
If organizing all of this information seems overwhelming to you, consider getting Quicken TurboTax for Home & Business. It contains a lot of information to help you understand and maximize your home office deductions. As with most tax considerations, you may also want to seek the advice of a tax professional before making the decision to have a home office, or to take the home office deduction.
|
© 2004 Intuit Inc. Legal
Notices | Terms of Service |
Privacy | Quicken Software License Agreement
