Engineered Tax Services Creates Proactive, Tax-Saving Plans for Qualifiers of the Home Office Deduction

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The Engineered Tax Services team works to create proactive tax plans using the home office deduction along with the simplified calculation method

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When clients look to Engineered Tax Services (ETS) for proactive tax plans, the home office deduction is a factor that is always considered. After all, if the IRS allows you to take a deduction for bills you already pay each month like utilities and a mortgage, why not claim the tax deduction and save some money? The home office deduction is not as huge of a deduction as cost segregation, conservation easement, energy credits, etc., but most business owners can arrange their operations to claim it. Small tax savings each year can really add up. Additionally, a few years ago, the IRS came up with a simplified method that eliminates most of the record keeping requirements and the depreciation recapture provision.

Who Can Claim a Home Office Deduction?

If one’s office space takes up 20 percent of their home, he or she can deduct 20 percent of bills for allowable business operations. The home office deduction is most commonly claimed by small business owners reporting their income and expenses on Schedule C. Form 8829, Expenses for Business Use of Your Home, is filed in association with Schedule C. However, the home office deduction may also be claimed by farmers filing Schedule F, partners receiving a Schedule K-1 (1065), and employees who are not provided a place to work by their employers.

What’s Allowable for the Home Office Deduction?

  • Utilities (including: electricity, water, sewer, natural gas, propane, heating oil, trash service, security system monitoring)
  • Homeowners’ or renters’ insurance
  • Repairs and maintenance (including items such as: repairs to the home or appliances, snow removal, tree removal, carpet cleaning, HVAC maintenance, calling a plumber to fix a leaky sink or remove roots from your sewer line, having a cleaning service clean the house, hiring an electrician to install a light fixture, and light bulbs. However, lawn care is specifically excluded by the IRS as pertaining to the “whole house”.)
  • Homeowners’ association dues and condo fees
  • Mortgage interest (The amount claimed as a home office deduction reduces the amount that can be claimed as an itemized deduction.)
  • Real estate taxes (The amount claimed as a home office deduction reduces the amount that can be claimed as an itemized deduction.)
  • Rent (Some people rent rather than own a home. Instead of claiming mortgage interest and real estate taxes, they can claim their rent as part of their total home office deduction.)

What is the Simplified Method for the Home Office Deduction?

The simplified method was first authorized by the IRS for tax year 2013. The exclusive use and business purpose requirements are the same as for the original home office deduction, but the record keeping requirements are greatly streamlined. Only the allowable square footage needs to be measured. The square feet of the business use of the home is multiplied by $5 to arrive at the home office deduction using the simplified method. The total square feet claimed cannot exceed 300, which limits the deduction to $1,500 per year.

Other benefits of the simplified method are: 1) Schedule A deductions for mortgage interest and real estate taxes are not reduced (as they would be using the normal computation of the home office deduction), 2) there is no recapture of depreciation when the house is sold, and 3) the calculation and recordkeeping requirements are significantly reduced.

Restrictions of the simplified method include: 1) the annual limit of $1,500 per year is often less than what could otherwise be claimed, and 2) the unused deduction in a current year may not be carried forward to future tax years (as is allowed by the traditional home office deduction).

About Engineered Tax Services

Engineered Tax Services is the largest specialty tax firm in the United States with its headquarters in West Palm Beach, Florida. ETS is owned by CEO and nationally recognized tax reform expert, Julio Gonzalez. Find out more about home office deductions at EngineeredTaxServices.com.

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Melissa Ferguson
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