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This formula is important because it defines the maximum amount of deduction you can count for each of the categories of expenses listed below.
Now comes the fun. Here is a list of the types of expenses from which to deduct as a part of home business expenses:
- Mortgage interest expense for the year,
- Real estate taxes for the year,
- Casualty losses of the home,
- Home insurance,
- Utilities (including water, electricity and natural gas),
- Home depreciation (if you depreciate your home),
- Security system installation and/or monthly maintenance fees,
- Renovations and other improvements benefiting the entire home,
- Repairs benefiting the entire home, and
- Telephone expenses, if you don't maintain separate business lines that are directly related to business use.
If you're like me, and reading this for the first time, you'll be scrambling around looking for all those receipts once thought to be irrelevant.
There are three very important factors you must consider in calculating the deductions:
- I do not provide you a straightforward formula for deducting each expense, because certain conditions exist that can reduce the maximum amount of a deduction. Read the IRS publication.
- Some of these forms will require elaborating other IRS forms.
- If the total allowable deduction exceeds the amount allowed for the year, you can carry the excess over to the next tax year. The carryover cannot extend beyond one year.
Now that I wetted your appetite for accounting, you want to first review the publication to clarify whether or not your home office does actually qualify for these deductions. If you are still not certain contact the IRS or a tax accountant for clarification.
© 2000, Carroll Stephen Windhaus
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