It’s no secret that running a successful small business isn’t easy. The Internal Revenue Service reminds small-business owners that they may qualify for a home office deduction that can help their bottom line and give them one less thing to worry about.

How to Qualify

Taxpayers can take the deduction if they use part of their home—and on a regular basis—for any of these:

• As the taxpayer’s main place of business.
• As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
• If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
• A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
• Under certain circumstances, the structure where the taxpayer provides day care services.

What to Deduct

Deductible expenses for business use of a home include real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, repairs, and maintenance.

Certain expenses are limited to the net income of the business, however. These allocable expenses include such things as utilities, insurance and depreciation. While allocable expenses can’t create a business loss, they can be carried forward to the next year.

Allocable expenses that are carried forward are still subject to the same limitation rules.

A Tale of Two Methods

Taxpayers have two choices for claiming the home office deduction. The first is known as the Regular method. This requires dividing the expenses already noted between personal and business use. Self-employed taxpayers should file Form 1040, Schedule C, and calculate the deduction on Form 8829.

A simpler way to calculate the deduction is called—what else—the Simplified method. This has a set rate of $5 per square foot for the areas used by the business in the home. This can be used for up to 300 square feet of business space.

Certain business owners should be aware of special rules:

• Daycare providers complete a special worksheet, which is found in Publication 587.
• Self-employed individuals use Form 1040, Schedule C, Line 30 to claim deduction.
• Farmers claim the home office deduction on Schedule F, Line 32.