A Reminder for Taxpayers with Home-Based Businesses

The Internal Revenue Service sent out a message last week to remind taxpayers with home-based businesses that, when filling out their 2015 federal individual income tax returns, they can choose a simplified method for claiming the deduction for business use of a home.

According to the last records published, in tax year 2013 more than 3.4 million taxpayers claimed deductions totaling just over 9.6 billion dollars for business use of a home, commonly referred to as the home-office deduction.

Normally, home-based businesses are required to fill out Form 8829, which often includes complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers can now choose the simplified method and need only complete a short worksheet in the tax instructions and enter the result on their return.  Individuals who are self-employed claim the home-office deduction on Schedule C, Line 30; farmers claim the deduction on Schedule F, Line 32, and eligible employees claim it on Schedule A, Line 21.

Homeowners using the simplified method can’t depreciate the portion of their home used in a trade or business, but they can claim allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A.  Theses deductions, using the simplified method, need no longer be allocated between personal and business use, as is required under the regular method.  Other requirements that a home office be used for regularly and exclusively for business and the limit tied to the income derived from that particular business still apply.

Save some time and some headaches this tax season and use the new simplified business home-office deduction.

Contact us if you have questions regarding your tax returns and visit the Schneider Downs tax blog for similar articles.

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