Tuesday, February 14, 2017

Simplified Method for Computing Home Office Deduction or Standard method of Home office ?

Simplified Method for Computing Home Office Deduction :

A simplified method for computing the qualified home office deduction is available. Under this method, the deduction equals $5 (for 2016) multiplied by the home’s square footage used for qualified business use (up to 300 square feet). Qualified business use is use that meets the tests under Qualified Home Office.

Here there is no need to maintain any records for expense incurred and This simplified option doesn’t change the criteria for claiming a home office deduction. It merely simplifies the calculation and record keeping requirements.
 The simplified method deduction is limited to net income from the business (before any home office deduction). It is reported on Schedule C, line 30. Form 8829 is not used.

When the simplified method is used, no depreciation can be claimed on the business-use portion of the home. But, mortgage interest, real estate taxes and casualty losses are claimed in full on Schedule A. There is no pro-ration of any of those expenses to Schedule C or F. Use of the simplified method has no effect on business expenses unrelated to the home, such as advertising, supplies and wages paid to employees.

Taxpayers can choose the simplified method on a year-to-year basis. But, any disallowed home office deduction carried over from a year in which actual expenses were deducted cannot be used in a year when the simplified method is used.