Therapist Independent Contractor Tax Preparation Checklist: Part 1- Home Deduction
After considerable tax questions and multiple emails to our tax prepare and financial advisor we decided to do a small blog to help you prepare for the tax season... Next Year.
Tax Preparation Checklist: Part 1 Business Use of Your Personal Home:
According to the IRS Small Business and Self Employed website you may consider deducting house hold expenses when you use your home for business use.
1. Criteria for Deducting Business Use of Your Personal Home:
Regular and Exclusive Use: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction
You must use the space in your house exclusvely for the general business operations of your busness. Examples included a designated room, or space that others do not use. You could not desginate your dining room where you also feed your family, they play games, etc.
Principal Place of Business:
Your home must be your principal place of business. Meaning you should not have another office location. If you do have another office location then you should be doing the majority of work at your home office, further exploration is necessary in those situations. Either way you should be doing much of your business operations in your home for it to qualify. Including: documenting on patient's charts, invoicing clients, scheduling patients, printing exercise sheets etc.
Take a look at the IRS Page for further explanation: (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction)
2. Potential Deductions:
You may make the following deductions when you do meet the above requirements. IRS Form 587: http://www.irs.gov/publications/p587/index.html
Common tax deductible expenses for a home based business:
____ Mortgage interest, real property taxes, PMI insurance, HOA Fees, (http://www.taxpreparerplus.com/self_employed.html) ____ Utilities, such as natural gas, electric, propane ____ Trash service, pest control service ____ Home insurance ____ Regular maintenance of the home
____ Depreciation of the business part of the home
____ House Alarm Monitory Fees
____ House Cleaning
Take a look at the IRS Page for further explanation: IRS Form 587: http://www.irs.gov/publications/p587/index.html
3. Calculating How Much You Can Deduct:
To calculate how much you can deduct you there are two methods according to the IRS (https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Simplified-Option-for-Home-Office-Deduction).
A. Simplified Option:
You may deduct $5 per square foot of home used for your business (no more than 300 sq. ft)
You may Itemize itemized deductions claimed in full on Schedule A. (Real Estate Taxes, Mortgage interest, etc.).
No home depreciation deduction
No recapture of depreciation upon sale of home.
B: Regular Method:
You may deduct a % of home used for business.
It is determined by actual expenses and records must be maintained.
Itemized deductions will be apportioned between Schedules A and C(Business) and F(Business)
You may depreciation deduction for area used
There is a recapture of depreciation on gain upon sale of home
Excess of gross income can be carried over to next year
We hope this helps: Remember we are just therapists finding information for other therapists...
Our Disclaimer: We are not legal advisors or tax advisors and this should all be confirmed based on your individual situation.
Refer to IRS Form 8829 - Expenses for Business Use of Your Home