Question

Our client performs bookkeeping work for her clients. She performs most of her client work at the client’s office. She has about ten clients and spends about 4 hours per client each week. She also has a dedicated office at her home where she does all of her administrative work. The administrative work she performs is at her home office to include billing, record keeping, and training. Additional Facts:
Area of her home used for business – 500 square feetTotal area of home – 5,000 square feetAnnual indirect costsGross income from business - $100,000Deductible mortgage interest - $25,000Real estate taxes - $1,500Utilities - $2,500Cost basis in the house - $350,000Cost basis in the land - $50,000What she wants to know is whether she can deduct expenses related to her home office? What is the estimated amount of the home office deduction?

Answer 1

Answer:

What she wants to know is whether she can deduct expenses related to her home office?

There are two basic requirements for claiming a home office deduction:

1. Regular and exclusive use: this might qualify because her home office would be used only as an office and not as an additional room. This requirement is OK.
2. Principal place of your business: she fails with this requirement since most of her work is done at her client's office. Since most of her work is done outside her home office, she cannot deduct expenses for it.

What is the estimated amount of the home office deduction?

There are two ways to deduct home office expenses if you qualify (in this case she doesn't):

1. Simplified option: $5 per square foot (for a maximum of 300 sq ft) = $1,500
2. Regular method: deductions are based on a % of the area used by the home office, in this case she could deduct approximately 10% of her home expenses (= 500 / 5,000) if she had qualified for the deduction.