Business Deductions

Quick Links

Hot Topics

Paychex Payroll Services: Sign up Today!

Need Some Deductions for 2011?

Don't overlook these!

10 Oddball Tax Deductions

11 Most Overlooked Tax Deductions

Updated for 2011

Home Office Deduction

<< Previous

Example of Home Office Deduction Computation

The following assumes you own your home and use 20% of its total square feet for your home office (400 S.F/2,000 S.F.):

Home Office Deduction Computation: Allocation Percentage 20%
Step 20%
1

Enter Tentative profit from Schedule C, Line 29

$3,900
2

Now enter the first Category of items:

Deductible mortgage interest: $1,800 (20% x $9,000). Note: The remaining $7,200 (80% x $9,000) is deducted on Schedule A as an itemized deduction.

Real estate taxes: $400 (20% x $2,000). Note: The remaining $1,600 ( 80% x $2,000) is deducted on Schedule A as an itemized deduction.
3 Total-Mortgage interest plus Real estate taxes($1,800 + 400)

($2,200)
4

Remaining tentative profit - ($3,900 minus $2,200)

$1,700

Enter the next category of items to be deducted from the remaining tentative profit:

Insurance: $160 (2-% x $800)

Utilities: $240 (20% x $1,200)
5 Total-Insurance plus utilities ($160 + $240)

($400)

6

This is the remaining tentative profit available to deduct depreciation from - ($1,700 minus $400)

$1,300

Final item to deduct:
 

Allowable Depreciation to be deducted from the remaining tentative profit of $1,300. The excess $100 is carried over to the following tax year.

($1,300)

Remaining Tentative profit ($1,300 minus $1,300)

$0

NOTE: Your home office deduction eliminated your Schedule C tentative profit ($3,900 minus $3,900). Schedule C, Line 31 will show zero net profit. Consequently, no entry is required to be carried to Form 1040, Line 12 (Business income of (loss).

Next:

Day-Care Services: Day-Care Services

Next >>