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Frequently Asked Tax Questions And Answers
Keyword: Home Office
11.1 Sale or Trade of Business, Depreciation, Rentals: Depreciation & Recapture
I purchased a computer last year to do online day trading part-time
from home for additional income. Can I deduct or depreciate the cost of the
computer or internet connection from my investment income?
You may deduct investment expenses (other than interest expenses) as miscellaneous
itemized deductions on Form 1040, Schedule A (PDF),
line 22, Itemized Deductions. This would include depreciation on
the portion of your computer used for investment purposes, and the portion
of your internet access charges used for investment purposes.
A deduction for depreciation of a computer for business use can be expensed
in the first year if qualified, or depreciated over the recovery period. To
claim the expense in the first year, the property must be used more than 50%
for business use, and meet the other requirements for expensing.
The 2003 Jobs and Growth Act raised the aggregate cost that can be expensed
for any tax year beginning after 2002 and before 2006 to $100,000. The new
law also expanded the definition of Code Section 179 property to include off-the-shelf
computer software. See Code Section 179 for the expanded definition. If the business use falls
to 50% or less in a later year, these tax benefits may be subject to recapture.
See Publication 946 , How to Depreciate Property for
additional information on the special deduction.
These deductions must be reduced by 2% of your adjusted gross income. Use Form 4562 (PDF), Depreciation and Amortization,
to compute the depreciation for the portion of your computer used for investment
purposes.
Note: Unless the computer is used more than 50% for business purpose (as
opposed to investment purposes), you cannot claim section 179 expensing of
the computer or claim accelerated depreciation for it. For more information,
refer to "Listed Property" in Publication 946, How to Depreciate Property.
References:
I have a home office. Can I deduct expenses like mortgage, utilities,
etc., but not deduct depreciation so that when I sell this house, the basis
won't be affected?
If you have qualified business use of your home and enough gross income
from that business use to that entitle you to a depreciation deduction, you
are required to reduce your basis in the home by the amount of depreciation
allowed (deducted) or allowable (could have been deducted).
Whether you choose to deduct the depreciation on your current return(s)
will not matter. For tax purposes, you will still be treated as if you had
taken the allowable deduction, and your basis will have to be reduced. For
more information, refer to Publication 946, How to Depreciate Property, Publication 544, Sales and Other Dispositions of Assets, and Publication 587, Business Use of Your Home.
References:
12.3 Small Business/Self-Employed/Other Business : Form W–2, FICA, Medicare, Tips, Employee Benefits
Does a household employer have to pay social security and Medicare
for all household employees if only one employee makes more than $1,400 in
the year?
No. The employer only has to pay social security and Medicare tax for the
employee(s) who receive $1,400 or more in wages for the year. If the amount
paid to any employee in a calendar year is less than $1,400, no social security
or Medicare tax is owed for that employee. If social security and Medicare
tax must be paid, the employee's portion of the social security and Medicare
tax should be withheld also, unless the employer chooses to pay both the employer's
share and the employee's share.
References:
- Publication 926, Household Employer's Tax Guide; Do
You Need to Pay Employment Taxes?
- Tax Topic 756, Employment Taxes for Household Employees
12.7 Small Business/Self-Employed/Other Business : Income & Expenses
I use my home for business. Can I deduct the expenses?
To deduct expenses related to the business use of part of your home, you
must meet specific requirements. Even then, your deduction may be limited.
Your use of the business part of your home must be:
Exclusive (see *exceptions below),
Regular,
For your trade or business, AND
The business part of your home must be one of the
following:
Your principal place of business,
A place where you meet or deal with patients, clients, or customers in
the normal course of your trade or business, or
A separate structure (not attached to your home) you use in connection
with your trade or business.
Additional tests for employee use. If you are an employee
and you use a part of your home for business, you may qualify for a deduction
use. You must meet the tests discussed above plus:
Your business use must be for the convenience of your employer, and
You do notrent any part of your home to your employer
and use the rented portion to perform services as an employee.
Whether the business use of your home is for your employer's convenience
depends on all the facts and circumstances. However, business use is not considered
to be for your employer's convenience merely because it is appropriate and
helpful.
*exceptions
You do not have to meet the exclusive use test if either of the following
applies.
You use part of your home for the storage of inventory of product samples.
You use part of your home as a day-care facility.
Form 1040, Schedule C (PDF) filers calculate
the business use of home expenses and limits on Form 8829 (PDF) . The deduction is claimed on line 30 of Schedule C. Employees
claim deduction for business use of home as an itemized deduction on Form 1040, Schedule A (PDF) .
For more information refer to Tax Topic 509 , Business Use of
Home, or Publication 587 , Business Use of Your Home
(Including Use by Day-Care Providers).
References:
I use part of my living room as an office. Can I take a deduction
for business use of my home?
In general, if you use a part of your home for both personal and business
purposes, no expenses for business use of that part are deductible. Exceptions
apply for qualified day-care providers and for the storage of inventory or
product samples used in your business. For additional information on business
use of your home, refer to Tax Topic 509, or Publication 587, Business
Use of Your Home (Including Use by Day-Care Providers).
References:
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