- Learn About the Simplified Method in Home Office Deduction
Learn About the Simplified Method in Home Office Deduction
Even if you are a tax professional, computing your client’s tax can sometimes be daunting. Tax accuracy computation for your clients is crucial because your clients may be charged with penalties if you fail to correct the mistake. More so, your reputation may be at risk, and your clients may not trust you again. With that said, you need to learn an easier way to help yourself with the computation. In this article, we will focus on the simplified method for determining the home office deduction of your client. So, if you are a tax preparer and have a self-employed client that uses part of their home for business purposes, this article is for you. Let’s get started!
What Is The Simplified Method?
The simplified method is an easier way to determine the amount you can deduct for qualified business use of a home. Most tax preparers and their clients prefer to use the simplified method because the standard procedure has some calculation, allocation, and substantiation requirements, which are more complicated.
What Information Do You Need to Calculate Your Client’s Home Office Deduction?
When computing for your client’s home office deduction, your client’s participation is crucial because they are the ones who will provide you with the essential information to complete the formula. Here are the things you need to ask from them so that you can calculate their home office deduction accurately:
- The square footage of their home office space used to conduct the business.
- Gross income earned from the usage of their home for business purposes.
- Additional business expenses that are unrelated to the home office, such as marketing and advertising supplies and equipment.
- The size of the new area if the client changed their business space.
- The number of days they conducted business from their home office each month.
How Can You Compute Home Office Deduction Using The Simplified Method?
After you have all the information needed, you can now apply the simplified method to determine your client’s home office deduction. You can start by multiplying your client’s total home office space by the rate per square foot for the current tax year. It’s that simple, and it doesn’t require you to have a detailed record of the client’s expenses.
Who Is Eligible to Claim the Home Office Deduction?
If your client is a home-based business owner, you need to consider some factors before computing their deductions because they need to meet specific requirements to qualify for the write-off. The criteria to be eligible for the write-off are as follows:
- Space must be their principal place of business
- Space must be regularly used
- Space must only be used for business purposes
- Your client must have earned enough gross income from their business.
If your client’s business deductions (not including home office) are equal to or more than their gross income from the business, then they cannot claim the home office deduction.
Learning the simplified method can help you minimize your time computing your client’s home office deductions every taxable year. It can make your life easier as a tax preparer because it requires fewer record-keeping documents to come up with an answer. Hopefully, this guide has made your computation more manageable so that you can compute your client’s tax more accurately and promptly. Keystone Tax Solutions can make your life even easier! We offer the best software for tax preparers
that is easy to use, has direct input or interview input, is accessible from any device, and can access your client’s information anytime, anywhere. Get a free demo today!