If you own a business and use part of your home to meet with clients, you may be eligible to claim a deduction for this part of your expenses. This is even true if the rest of your business is conducted at another location. For example, an attorney could meet with clients at home two days a week and work out of a separate office the other three days. However, the use of your home must be substantial and integral to your business to qualify for a deduction. Videoconferencing is not enough to meet these requirements.
Depreciation deduction for non-residential office expenses
Using your home as a non-residential office can reduce your taxable income. The deduction is based on a percentage of your home’s square footage that is used for business purposes. This includes utilities, insurance, and other expenses for running your office.
This deduction is available for a number of items that are used for business purposes, including a laptop, a desk, and a filing cabinet. The laptop can be depreciated at $400 per year. However, the property must be owned by the business in order to be eligible for depreciation. If the property is sublet, it cannot be depreciated. However, if the property is mortgaged, the IRS will still consider it owned by the business.
Regular method
If you rent an apartment, you can deduct the expenses related to your office as long as it is not your primary residence. The regular method allows you to deduct up to 20% of the rent for your office space, so you can deduct 20% of your total expenses. The regular method allows you to carry over any excess deductions.
In the past, you would have had to tally your expenses by hand and use dedicated spreadsheets. Today, there are apps that can help automate the process. Keeper is one such app. It scans purchases for home-related expenses, and it helps freelancers and independent contractors find and claim tax deductions.
Regular method for calculating non-residential office expenses
You may be wondering how to calculate the amount of deduction you can take for a non-residential office. There are a couple of ways to calculate it. One is using the Regular method of calculating non-residential office expenses, but the other is a simplified method that you can use for the 2013 tax year. The simplified method enables you to compute the amount in just a few steps. In this method, you deduct both direct and indirect expenses. Direct costs are those that benefit your home office, while indirect costs are those you would incur regardless of the use of the room. The latter category includes your mortgage payment and rent, among other things.
Another option is the regular method, which allows you to deduct the amount of expenses you incur for your home office based on the square footage of the office. To determine the area of your home that is used for your business, divide it by the total area of your home. This allows you to carry over any excess deductions, but it requires good record-keeping.
Indirect expenses
The deduction for non-residential office expenses can help you reduce your real estate taxes. To claim this deduction, you need to determine how much of your house is used for business purposes. Divide the square footage of your home office by the total square footage of your house to get the “business percentage.” For example, if your home office occupies 300 square feet of your home, your business deduction is equal to 10% of the house’s total square footage. Then, multiply the indirect expense by that percentage and add it to your direct office expense to determine your total deduction.
The costs for indirect office expenses are expenses that are not related to the business activity itself. These expenses include salaries of administrative staff, supplies, project publication, computer and telephone expenses, and travel expenses. For major projects or activities, it may be appropriate to directly charge these costs.