Once you have determined that you are entitled to claim a deduction for business use of your home, you then need to determine the allowable deductions that are related to your business, and the use of your home.
So what household expenses are deductible? To make this determination it is necessary to separate your household expenses into three categories;
- 1) Expenses that are not related to your business use. 2) Expenses that are indirectly related to your business. 3) Expenses that are directly related to your business.
Let’s eliminate one category right away. Expenses that are totally unrelated to your business are not deductible, therefore these expenses need to be treated as personal expenses. In general I would state that all expenses directly related to your business would be deductible. Also, the business portion of indirectly related expenses would be deductible. I might caution you that because of limits placed on deductions for expenses that pertain to your business, you may find that even directly and indirectly related expenses could be disallowed. I won’t go into this here, but you could research what limits are placed on deductions to make a determination in your situation.
I should explain what a directly related expense is. These would be the expenses incurred in your home that benefit only the business portion of your home. This would be for the area used exclusively for your business, and only for the business area. An example would be new carpet only in the area used exclusively for business, or painting the area.
Directly related expenses are fully deductible but are subject to a limit based on the gross income of the business . If a direct expense is for the purchase of property that will be used for more than one year (furniture), the cost must generally be depreciated over a number of years.
OK now let’s discuss indirectly related expenses. These are the expenses that you incur in maintaining and running your entire home.
These expenses benefit both your business and personal portions of the home. You may use the business portion of these expenses to calculate the home office deduction.
Indirect expenses include such items as:
- 1. Real estate taxes; 2. Deductible mortgage interest; 3. Rent; 4. Utilities and services; 5. Insurance; and 6. Depreciation.
Special rules apply to determine the deductible amount of some indirectly related expenses. You should research these special rules.
Expenses for utilities and services (e.g., electricity and trash removal) must be allocated between the deductible business portion and the nondeductible personal portion of the expense. The business portion of these expenses can be based upon the percentage of the home that is used for business.
The basic local telephone charge, including taxes, for the first telephone line into your home is a nondeductible personal expense So if you only have one telephone line into your home, you may not claim any deduction for charges that are required to obtain local telephone service, even if you are able to prove that the line is used 100% for business reasons. Charges for optional services such as call-waiting, call-forwarding, three-way calling, or extra directory listings are deductible if a business purpose can be established. In addition, charges for long-distance calls or payments for a service that permits you an unlimited number of calls to or from persons that live outside your local area are deductible, even if they are on the first telephone line, provided that you establish a business purpose for them.
Business calls made on a second line pengeluaran hk in the home and/or from a cellular telephone used exclusively for business would generally be fully deductible. Deductible telephone expenses are not part of the office-in-home expenses. Instead, they are deducted as part your other ordinary and necessary business expenses.