3 Steps You Can Use To Deduct The Business Use Of Your Property
The IRS has a specific set of rules to follow while claiming a portion of your private property for business use. If you precisely follow the given rules, you can slightly offset the cost of owning or renting and maintaining the property. Neglecting to abide by the rules, however, can land you with an audit and possible repayment of the previously award funds. Here’s what you need to know when calculating deductions for using your personal property for business-related tasks.
Confirm Exclusive Use
You must define and use a specific area of your property for your business and keep all personal activities out of that space. If you have a home office, for example, you cannot use the room for art projects, personal storage or a guest room when it is not being used for business. In addition, you can claim a closet used for storing business equipment and documents, as long as you do not place any personal items in that space at any time throughout the year. If you use a garage for storage, but also park your personal vehicle there, it does not qualify for the business use deduction.
Accurately Calculate Percentage
Once you identify the areas you use solely for business, you will need to accurately calculate the square footage of that space. Use a tape measure to accurately determine the length and width of the room, and then multiple those numbers to find the total square footage. Repeat this process for every room, closet or other space you use for your business. Add up all of the square footage numbers, and then divide the total by the square footage of your entire house. If you include use of an outbuilding, such as a garage or shed, in your calculations, add the square footage of those buildings to your home’s total before dividing to find your usage percentage.
Add Eligible Expenses
For the regular calculation method, you will add all of your expenses, including mortgage or rent, utilities, repairs and security, related to the upkeep of your property. You can total up those numbers and multiply them by the usage percentage found in the last step to determine the costs associated with the business use of your property. You may also utilize the simplified method by multiplying your business square footage by $5, for up to 300 square feet. You can utilize either of those numbers as a deduction to offset the yearly expenses of operating your business.
Preparing Your Deductions
As with all tax calculations, there are always exceptions to the rule, so it pays to speak with a tax advisor about your specific situation. When it comes time to calculate and apply your deductions, keep your stress levels low by delegating the responsibility to your tax preparer at The Income Tax Center in Missouri. Your tax preparation professional will accurately calculate your income, credits and deductions to provide you with the best possible tax result. With expert assistance, you can rest assured that your taxes meet all of the IRS rules and regulations for the year.