The IRS requires that in order to deduct expenses for your home based business the rooms that are designated should be devoted exclusively as the principal place of business for your trade, or the place where you meet with clients in the normal course of your business. You cannot deduct business expenses for any part of the home used for both personal and business.
Expenses that are deductible include the business portion of taxes, mortgage interest, rent, utilities, insurance, depreciation, maintenance and repairs. To determine the business portion of the home, our CPA advised us to draw up our floor plan and mark the rooms that qualified under the IRS rules. We took the dimensions of these rooms and calculated the total square footage used for the art business. Using simple math we divided the total square footage of our house by the business square footage and arrived at a percentage of business use. Example; 2,000 sq. ft. home divided by 250 sq. ft. of business space equals 8% of the home used for business. After arriving at the percentage of business utilization, it is an easy task at the end of the year to allocate that percent to each of the total yearly expenses as a deduction.
More tomorrow,
Gail Niebrugge, Alaska Professional Artist
