Small business owners may qualify for a home office deduction that will help them save money on their taxes, and benefit their bottom line. Taxpayers can take this deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:

  • 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.

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. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation.  While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.

There are two options for figuring and claiming the home office deduction.

Regular method
This method requires dividing the above expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829.

Simplified method
The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.

  • Taxpayers who work multiple jobs or who may be adding summer employment need to complete a Paycheck Checkup. Doing so will help them check if they are having the right amount of tax withheld from their paychecks.
  • Checking and adjusting tax withholding as early as possible in 2019 is the best way to head off a tax-time surprise next year.
  • The Tax Cuts and Jobs Act (TCJA) made changes to the tax law. Among other things, the new law increased the standard deduction, eliminated personal exemptions, increased the child tax credit, limited or discontinued certain deductions and changed the tax rates and brackets. As a result, many taxpayers ended up receiving refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed their 2018 tax returns.
  • Two-income families and people with multiple jobs may be more vulnerable to being under-withheld or over-withheld following these major law changes. For 2019, a Paycheck Checkup is especially important for taxpayers who adjusted their withholding in 2018, specifically in the middle or later parts of the year. Doing a Paycheck Checkup can help determine the correct amount of tax for each of their employers to withhold.
  • The IRS urges everyone to do a Paycheck Checkup as early in the year as possible so that if an adjustment is needed, there is more time for withholding to happen evenly during the rest of the year. Waiting means there are fewer pay periods to withhold the necessary federal tax.
  • The easiest way to do a Paycheck Checkup is to use the Withholding Calculator on IRS.gov. The Withholding Calculator can help taxpayers estimate their income, credits, adjustments and deductions more accurately and check if they have the right amount of tax withheld for their financial situation. When using the calculator, it’s helpful to have a completed 2018 tax return and a recent pay stub available.
  • Based on the Withholding Calculator’s recommendations, the taxpayer can then fill out and submit a new Form W-4 to their employer. In many instances, this means claiming fewer withholding allowances or having an extra flat-dollar amount withheld from their pay.
  • Self-employment
    Some workers are considered self-employed and are responsible for paying taxes directly to the IRS. One way to pay taxes directly to the IRS is by making estimated tax payments during the year.
  • TCJA changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system.
  • The revised estimated tax package, Form 1040-ES, on IRS.gov is designed to help taxpayers figure these payments correctly. The package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.
  • Other situations
    Anyone who had a life change, such as getting married or divorced, buying a home or having a baby should also consider a Paycheck Checkup.
  • Pay electronically anytime
    Taxpayers can pay their 2019 estimated tax payments electronically any time before the final due date for the tax year. Most taxpayers make estimated tax payments in equal amounts by the four established due dates. The three remaining due dates for tax year 2019 estimated taxes are June 17, Sept. 16, and the final payment is due Jan. 15, 2020. Direct Pay and EFTPS are both free payments options, and taxpayers can schedule their payments in advance as well as receive email notifications about the payment.