1) Continue to use IRS Form 8829 Expenses for Business Use of Your Home
2) Use the Simplified Method on Schedule C, line 30
Use IRS Form 8829
Multiply house expenses by your Time-Space Percentage.
$10,000 x 35% Time-Space = $3,500 tax deduction
If you are in the 30% tax bracket = $1,050 in tax savings ($3,500 x 30%)
The Simplified Method
Can deduct up to a maximum of $1,500 of house expenses without receipts.
Multiply $5 by your Time Percent x a maximum of 300 square feet that you use regularly for your business.
$5 x 35% Time = $1.75 x 300 square feet = $525 tax deduction
If you are in the 30% tax bracket = $158 in tax savings ($525 x 30%)
Note: If you use the Simplified Method you can also claim 100% of your property tax and mortgage interest on Schedule A (if you itemize).
Let’s say that $5,000 of the $10,000 of the above house expenses were property tax and mortgage interest. If we used Form 8829, $1,750 of these expenses would be claimed on Form 8829 and the remaining $3,250 would be claimed on Schedule A.
Using the Simplified Method we can now claim an additional $1,750 on Schedule A. (The $3,250 is allowed on Schedule A no matter which method we use.)
$1,750 x 15% tax bracket = $263 in tax savings
New total for tax savings using the Simplified Method: $158 + $263 = $421
This is still less than half the tax savings using Form 8829: $421 vs. $1,050
Few providers should use the Simplified Method. Don’t use the Simplified Method unless you have closely compared what you could deduct on Form 8829.
Tom Copeland – www.tomcopelandblog.com
Image credit: www.leoraw.com
Categories: Record Keeping & Taxes