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According to the IRS as of 2012, in order to qualify to deduct expenses for business use of your home, your home must meet these stipulations:

1. Home must be used regularly and exclusively as the principle place of business.

2. The place where you meet clients, patients, or customers in the normal course of your trade or buisiness or

3. You use a separate structure not attached to your home for your place of business.

Deductible expenses for business use of your home include the business portion of: {readmore}

real estate taxes

deductible mortgage interest

rent

casualty losses

utilities

insurance

depreciation

maintenance and repair

Things such as lawn care in general or for painting a room not used for business is not deductible.

How do you figure out what amount you can deduct for the business use of your home?

You will use a percentage.  This percentage is deriven from dividing the square footage of the room you use in your business by the total number of square feet in your home.

For example, if you have a 1500 squiare foot house, and the room used for business purposes is 300 square feet, you will divide 300/1500 or 20%. So, 20% of your expenses are considered deductible for business use of your home.

If your mortgage payment is $1500.00 per month, 20% of that is  $300.00. So $300.00 per month is a deductible expense for your rent.

In addition to your home office deduction percentage, you can also use the percentage rule in other rooms in your home if you let clients use them.  An example might be a downstairs bathroom.

How do you jornalize this?

Your owners drawing account should be set up to account for these expenses separately.  You will have for example, in your chart of accounts in owners drawing section, some sub accounts as follows:

3500 Owners Drawing
3505 Rent
3510 Utilities
3515 Maintenance

A journal entry to properly record this is as follows:

3/31/xx                                            Debit                 Credit

Rent                                                 $300.00

Owners Drawing                                                         $300.00

Memo: Rent for March xx

Having these additional deductions can help you get the maximum amount back or make your company pay less in taxes.

 

 

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