By: Iskra Pérez Salcedo
- Home office deduction benefits eligible small business owner
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:
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.
Rent Your Home to Your Business
For a lot of entrepreneurs, the year-end meetings, whether it is with shareholders, your board of directors or your employees, usually means renting out an expensive conference room and catering expensive food. While these expenses can be written off on your tax return, it is still a significant expense you have to pay.
But what if you could have the tax write-off without losing the money for the expenses? By renting your home to your business, you can do exactly that.
Let’s say that instead of renting a conference room at the Four Seasons, you decide to host the meetings in your own home. You buy the food and have it all made up and serve it yourself. It may seem like a hassle at first, but what if you could have your company pay you for the services? And what if you didn’t have to claim that money as income on your tax return? Seems too good to be true, right? Fortunately, the IRS lets you do exactly that.
So how is it possible to be paid by your company for renting your home and not claim it as income on your taxes? Because of a little-known rule that allows you to rent out your personal residence for less than 15 days per year and claim none of the income on your taxes.
But as with any great strategy, there are clear rules that must be followed to take advantage:
- Your Home has to be Rented for Less Than 15 Days
This one is pretty straight forward. Rent it for day over 14 and you lose the tax break. But what the 14 days allowed means is that if you have a board meeting every month, you can host all 12 in your home and still get the deduction!
- You Must Rent Your Home at a Fair Rate
The best advice here is to call around and get actual quotes for other places and then charge the average of those prices for your home. Keep the quotes they give you as proof.
- You Must Issue Yourself a 1099 From Your Company
Have your Accountant send a 1099 from your company to you with the total rent amount paid. You will then claim the 1099 on your personal taxes, which will then be offset when you list the rental as less than 15 days.
- Record Minutes
If you are hosting a board meeting, you are used to keeping the minutes. But regardless of the event you are renting your home for, make sure someone is recording everything that is discussed and what goes on.
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Iskra Pérez Salcedo was born in Cuba in 1971 and came to the US at the age of nine during the 1980 Mariel Exodus. Education has always played a big part of her vision, since it was through education that she broke away from poverty levels.
After twenty-five years of a successful career in accounting. At the age of 45, she found herself in a deep depression, the life she had built had collapsed. Her International Financial Analyst position was being eliminated by corporate, her children had all moved out and she had no idea what her purpose in life would be going forward.
It was the when she decided it was time to reinvent her path. She left corporate America and is currently the Founder and CEO of IPS Accounting Services, Helping You Find The Road to Financial Growth.
Additionally, she always finds time to volunteer and help her community in various projects and serves on various local boards.
Iskra C Perez Salcedo Managerial Accountant/Fractional CFO
IPS Accounting & Consulting Services; https://ipsaccountingservices.com/; (843)637-7100