This is the third of four articles (click here for Tip #1, Tip #2 and Tip #4) written by my husband Pete Lachance, CPA, who will provide some tips and tricks to help home party plan consultants reduce their taxes and make their life easier when filing their taxes.
Home Office Deduction
How would you like to take another $500 in tax deductions? Did you know the IRS allows home party plan consultants to deduct the use of a home office? If you qualify you could take another $500 in deductions. Here are the details:
- To qualify the home office must be used regularly and exclusively for your home party plan business. That means you can’t use the home office space for personal use and the space must be used regularly for your business.
- For example, if you have a spare bedroom that has a desk, computer and some storage for your product inventory and you don’t use that space for personal use then that space would qualify for the home office deduction.
- The space is not required to be an entire room, it could be a portion of a room. A finished or unfinished basement could even qualify.
- The deduction consists of a portion of your home expenses (utilities, phone, maintenance, etc.) and a portion of the depreciation on your home.
- For example, if you use an entire 10 x 10 second bedroom as a home office (100 square feet) and the total home square footage is 2000 square feet then you could deduct 5% of your home expenses. If you spend $5,000 on heat, electricity, maintenance and other home expenses then you could deduct $250 a year.
- For home depreciation, if your home (not including land) is worth $200,000 using the same facts from the last example you could deduct approximately another $250 a year using the IRS depreciation tables.
- The only catch with the home office deduction is it is limited to the net income from the business. So if you compute your home office deduction to be $500 but you only made $300 from your business then you can only deduct $300. But, the excess $200 will carryforward as a deduction for next year.
Given the complex nature of this deduction I recommend consulting with a tax advisor to determine your eligibility. But the good news is most of the major tax software packages like TurboTax, TaxCut, etc should be able to handle this computation.
Photo by roland
{ 2 comments… read them below or add one }
I am curious about the definition of “personal” use…my office is a small room off of the kitchen which houses a computer and bookshelves. I am a consultant for Chez Ami children’s clothing, so I use my computer year-round for that purpose. However, the computer is also our personal family computer…is that considered “personal” use?
Hi leigh, doesn’t sound like that small room meets the “exclusive” test if you also use it for personal use.