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Www hrblock com Publication 509 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. Www hrblock com Tax questions. Www hrblock com Background Information for Using the Tax CalendarsElectronic deposit requirement. Www hrblock com Legal holidays. Www hrblock com Statewide legal holidays. Www hrblock com Future Developments For the latest information about developments related to Publication 509, such as legislation enacted after it was published, go to www. Www hrblock com irs. Www hrblock com gov/pub509. Www hrblock com What's New Publication 1518 discontinued after 2013. Www hrblock com  Publication 1518, IRS Tax Calendar for Small Businesses and Self-Employed, is discontinued after 2013. Www hrblock com An IRS Tax Calendar and most of the information previously contained in Publication 1518 can be found at www. Www hrblock com irs. Www hrblock com gov/taxcalendar. Www hrblock com Reminders Photographs of missing children. Www hrblock com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Www hrblock com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www hrblock com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Www hrblock com Introduction A tax calendar is a 12-month calendar divided into quarters. Www hrblock com The calendar gives specific due dates for: Filing tax forms, Paying taxes, and Taking other actions required by federal tax law. Www hrblock com What does this publication contain?   This publication contains the following. Www hrblock com A section on how to use the tax calendars. Www hrblock com Three tax calendars: General Tax Calendar, Employer's Tax Calendar, and Excise Tax Calendar. Www hrblock com A table showing the semiweekly deposit due dates for payroll taxes for 2014. Www hrblock com   Most of the due dates discussed in this publication are also included in the IRS Tax Calendar available at www. Www hrblock com irs. Www hrblock com gov/taxcalendar. Www hrblock com Who should use this publication?   Primarily, employers need to use this publication. Www hrblock com However, the General Tax Calendar has important due dates for all businesses and individuals. Www hrblock com Anyone who must pay excise taxes may need the Excise Tax Calendar . Www hrblock com What are the advantages of using a tax calendar?   The following are advantages of using a calendar. Www hrblock com You do not have to figure the due dates yourself. Www hrblock com You can file or pay timely and avoid penalties. Www hrblock com You do not have to adjust the due dates for Saturdays, Sundays, and legal holidays. Www hrblock com You do not have to adjust the due dates for special banking rules if you use the Employer's Tax Calendar or Excise Tax Calendar . Www hrblock com Which calendar(s) should I use?   To decide which calendar(s) to use, first look at the General Tax Calendar and highlight the dates that apply to you. Www hrblock com If you are an employer, also use the Employer's Tax Calendar . Www hrblock com If you must pay excise taxes, use the Excise Tax Calendar . Www hrblock com Depending on your situation, you may need to use more than one calendar. Www hrblock com Table 1. Www hrblock com Useful Publications IF you are. Www hrblock com . Www hrblock com . Www hrblock com THEN you may need. Www hrblock com . Www hrblock com . Www hrblock com An employer • Publication 15 (Circular E), Employer's Tax Guide. Www hrblock com  • Publication 15-A, Employer's Supplemental Tax Guide. Www hrblock com  • Publication 15-B, Employer's Tax Guide to Fringe Benefits. Www hrblock com  • Publication 926, Household Employer's Tax Guide. Www hrblock com A farmer • Publication 51 (Circular A), Agricultural Employer's Tax Guide. Www hrblock com  • Publication 225, Farmer's Tax Guide. Www hrblock com An individual • Publication 505, Tax Withholding and Estimated Tax. Www hrblock com Required to pay excise taxes • Publication 510, Excise Taxes. Www hrblock com What is not in these calendars?   The calendars do not cover the employment or excise tax deposit rules. Www hrblock com You can find the deposit rules for employment taxes in Publication 15 (Circular E), Employer's Tax Guide. Www hrblock com The deposit rules for excise taxes are in Publication 510, Excise Taxes, and in the Instructions for Form 720, Quarterly Federal Excise Tax Return. Www hrblock com In addition, the calendars do not cover filing forms and other requirements for: Estate taxes, Gift taxes, Trusts, Exempt organizations, Certain types of corporations, or Foreign partnerships. Www hrblock com What other publications and tax forms will I need?   Table 1 lists other publications you may need to order. Www hrblock com Each calendar lists the forms you may need. Www hrblock com   See How To Get Tax Help near the end of this publication for information about getting publications and forms. Www hrblock com Comments and suggestions. Www hrblock com   We welcome your comments about this publication and your suggestions for future editions. Www hrblock com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Www hrblock com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Www hrblock com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www hrblock com   You can send us comments from www. Www hrblock com irs. Www hrblock com gov/formspubs. Www hrblock com Click on More Information and then click on Comment on Tax Forms and Publications. Www hrblock com   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our forms and publications. Www hrblock com Ordering forms and publications. Www hrblock com   Visit www. Www hrblock com irs. Www hrblock com gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Www hrblock com Internal Revenue Service 1201 N. Www hrblock com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www hrblock com   If you have a tax question, check the information available on IRS. Www hrblock com gov or call 1-800-829-1040. Www hrblock com We cannot answer tax questions sent to either of the above addresses. Www hrblock com Background Information for Using the Tax Calendars The following brief explanations may be helpful to you in using the tax calendars. Www hrblock com IRS e-services make taxes easier. Www hrblock com   Now more than ever before, businesses can enjoy the benefits of filing and paying their federal taxes electronically. Www hrblock com Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make taxes easier. Www hrblock com    You can e-file your Form 1040; certain business tax returns such as Forms 1120, 1120S, and 1065; certain employment tax returns such as Forms 940 and 941; certain excise tax returns such as Forms 720, 2290, and 8849; and Form 1099 and other information returns. Www hrblock com Visit www. Www hrblock com irs. Www hrblock com gov/efile for more information. Www hrblock com You can pay taxes online or by phone using the Electronic Federal Tax Payments System (EFTPS). Www hrblock com For detailed information about using this free service, see Electronic deposit requirement below. Www hrblock com   Use these electronic options to make filing and paying taxes easier. Www hrblock com For more information on electronic payments, visit the IRS website at www. Www hrblock com irs. Www hrblock com gov/e-pay. Www hrblock com Tax deposits. Www hrblock com   Some taxes can be paid with the return on which they are reported. Www hrblock com However, in many cases, you have to deposit the tax before the due date for filing the return. Www hrblock com Tax deposits are figured for periods of time that are shorter than the time period covered by the return. Www hrblock com See Publication 15 (Circular E) for the employment tax deposit rules. Www hrblock com For the excise tax deposit rules, see Publication 510 or the Instructions for Form 720. Www hrblock com    Electronic deposit requirement. Www hrblock com   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Www hrblock com Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Www hrblock com EFTPS is a free service provided by the Department of Treasury. Www hrblock com If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Www hrblock com   To get more information or to enroll in EFTPS, call 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD/TTY). Www hrblock com You can also visit the EFTPS website at www. Www hrblock com eftps. Www hrblock com gov. Www hrblock com Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Www hrblock com    If you fail to timely, properly, and in full make your federal tax deposit, you may be subject to a failure-to-deposit penalty. Www hrblock com For an EFTPS deposit to be on time, you must initiate the deposit by 8 p. Www hrblock com m. Www hrblock com Eastern time the day before the date the deposit is due. Www hrblock com Saturday, Sunday, or legal holiday. Www hrblock com   Generally, if a due date for performing any act for tax purposes falls on a Saturday, Sunday, or legal holiday, the act is considered to be performed timely if it is performed no later than the next day that is not a Saturday, Sunday, or legal holiday. Www hrblock com The term legal holiday means any legal holiday in the District of Columbia. Www hrblock com The calendars provided in this publication make the adjustment for Saturdays, Sundays, and legal holidays. Www hrblock com But you must make any adjustments for statewide legal holidays, as discussed next. Www hrblock com An exception to this rule for certain excise taxes is noted later under the Excise Tax Calendar. Www hrblock com Legal holidays. Www hrblock com   Legal holidays for 2014 are listed below. Www hrblock com January 1— New Year's Day January 20— Birthday of Martin Luther King, Jr. Www hrblock com / Inauguration Day February 17— Washington's Birthday April 16— District of Columbia Emancipation Day May 26— Memorial Day July 4— Independence Day September 1— Labor Day October 13— Columbus Day November 11— Veterans Day November 27— Thanksgiving Day December 25— Christmas Day Statewide legal holidays. Www hrblock com   A statewide legal holiday delays a due date for filing a return only if the IRS office where you are required to file is located in that state. Www hrblock com A statewide legal holiday does not delay a due date for making a federal tax deposit. Www hrblock com Extended due date for Forms 1098, 1099, and W-2 if filed electronically. Www hrblock com   If you file Forms 1098, 1099, or W-2 electronically, your due date for filing them with the IRS or the Social Security Administration (SSA) will be extended to March 31. Www hrblock com   For 2014, the due date for giving the recipient these forms is January 31. Www hrblock com   For information about filing Forms 1098, 1099, or W-2G electronically, see Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. Www hrblock com For information about filing Form W-2 electronically with the SSA, visit www. Www hrblock com ssa. Www hrblock com gov/employer or call 1-800-772-6270. Www hrblock com Penalties. Www hrblock com   Whenever possible, you should take action before the listed due date. Www hrblock com If you are late, you may have to pay a penalty as well as interest on any overdue taxes. Www hrblock com   Be sure to follow all the tax laws that apply to you. Www hrblock com In addition to civil penalties, criminal penalties may be imposed for intentionally not paying taxes, for intentionally filing a false return, or for not filing a required return. Www hrblock com Use of private delivery services. Www hrblock com   You can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. Www hrblock com These private delivery services include only the following. Www hrblock com DHL Express (DHL): DHL Same Day Service. Www hrblock com Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First. Www hrblock com United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Www hrblock com M. Www hrblock com , UPS Worldwide Express Plus, and UPS Worldwide Express. Www hrblock com   For the IRS mailing address to use if you are using a private delivery service, go to IRS. Www hrblock com gov and enter “private delivery service” in the search box. Www hrblock com   The private delivery service can tell you how to get written proof of the mailing date. Www hrblock com    The U. Www hrblock com S. Www hrblock com Postal Service advises that private delivery services cannot deliver items to P. Www hrblock com O. Www hrblock com boxes. Www hrblock com You must use the U. Www hrblock com S. Www hrblock com Postal Service to mail any item to an IRS P. Www hrblock com O. Www hrblock com box address. Www hrblock com Prev  Up  Next   Home   More Online Publications
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Fix-It Guides - Common Problems, Real Solutions

Tips on how to find, fix, and avoid common mistakes in retirement plans.

Each guide provides:

  • an overview of the rules for each plan type,
  • an overview of the Employee Plans Compliance Resolution System,
  • the most frequent errors we find in each plan type and
  • tips on how to find, fix and avoid these mistakes.

The format of each guide enables users to navigate, select and print only the mistakes that are of interest to them.

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Www hrblock com Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Www hrblock com Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Www hrblock com However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Www hrblock com Even then, the deductible amount of these types of expenses may be limited. Www hrblock com Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Www hrblock com To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Www hrblock com Additional tests for employee use. Www hrblock com   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Www hrblock com You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Www hrblock com If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Www hrblock com Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Www hrblock com The area used for business can be a room or other separately identifiable space. Www hrblock com The space does not need to be marked off by a permanent partition. Www hrblock com You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Www hrblock com Example. Www hrblock com You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Www hrblock com Your family also uses the den for recreation. Www hrblock com The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Www hrblock com Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Www hrblock com You use part of your home for the storage of inventory or product samples (discussed next). Www hrblock com You use part of your home as a daycare facility, discussed later under Daycare Facility . Www hrblock com Note. Www hrblock com With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Www hrblock com Storage of inventory or product samples. Www hrblock com    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Www hrblock com However, you must meet all the following tests. Www hrblock com You sell products at wholesale or retail as your trade or business. Www hrblock com You keep the inventory or product samples in your home for use in your trade or business. Www hrblock com Your home is the only fixed location of your trade or business. Www hrblock com You use the storage space on a regular basis. Www hrblock com The space you use is a separately identifiable space suitable for storage. Www hrblock com Example. Www hrblock com Your home is the only fixed location of your business of selling mechanics' tools at retail. Www hrblock com You regularly use half of your basement for storage of inventory and product samples. Www hrblock com You sometimes use the area for personal purposes. Www hrblock com The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Www hrblock com Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Www hrblock com Incidental or occasional business use is not regular use. Www hrblock com You must consider all facts and circumstances in determining whether your use is on a regular basis. Www hrblock com Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Www hrblock com If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Www hrblock com Example. Www hrblock com You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Www hrblock com You do not make investments as a broker or dealer. Www hrblock com So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Www hrblock com Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Www hrblock com To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Www hrblock com To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Www hrblock com Your home office will qualify as your principal place of business if you meet the following requirements. Www hrblock com You use it exclusively and regularly for administrative or management activities of your trade or business. Www hrblock com You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Www hrblock com If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Www hrblock com However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Www hrblock com Administrative or management activities. Www hrblock com   There are many activities that are administrative or managerial in nature. Www hrblock com The following are a few examples. Www hrblock com Billing customers, clients, or patients. Www hrblock com Keeping books and records. Www hrblock com Ordering supplies. Www hrblock com Setting up appointments. Www hrblock com Forwarding orders or writing reports. Www hrblock com Administrative or management activities performed at other locations. Www hrblock com   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Www hrblock com You have others conduct your administrative or management activities at locations other than your home. Www hrblock com (For example, another company does your billing from its place of business. Www hrblock com ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Www hrblock com You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Www hrblock com You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Www hrblock com (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Www hrblock com ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Www hrblock com Please click here for the text description of the image. Www hrblock com Can you deduct business use of the home expenses? Example 1. Www hrblock com John is a self-employed plumber. Www hrblock com Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Www hrblock com He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Www hrblock com John writes up estimates and records of work completed at his customers' premises. Www hrblock com He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Www hrblock com John does not do his own billing. Www hrblock com He uses a local bookkeeping service to bill his customers. Www hrblock com John's home office qualifies as his principal place of business for deducting expenses for its use. Www hrblock com He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Www hrblock com His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Www hrblock com He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Www hrblock com Example 2. Www hrblock com Pamela is a self-employed sales representative for several different product lines. Www hrblock com She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Www hrblock com She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Www hrblock com Pamela's business is selling products to customers at various locations throughout her territory. Www hrblock com To make these sales, she regularly visits customers to explain the available products and take orders. Www hrblock com Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Www hrblock com She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Www hrblock com The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Www hrblock com She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Www hrblock com Example 3. Www hrblock com Paul is a self-employed anesthesiologist. Www hrblock com He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Www hrblock com One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Www hrblock com Paul very rarely uses the office the hospital provides. Www hrblock com He uses a room in his home that he has converted to an office. Www hrblock com He uses this room exclusively and regularly to conduct all the following activities. Www hrblock com Contacting patients, surgeons, and hospitals regarding scheduling. Www hrblock com Preparing for treatments and presentations. Www hrblock com Maintaining billing records and patient logs. Www hrblock com Satisfying continuing medical education requirements. Www hrblock com Reading medical journals and books. Www hrblock com Paul's home office qualifies as his principal place of business for deducting expenses for its use. Www hrblock com He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Www hrblock com His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Www hrblock com His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Www hrblock com He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Www hrblock com Example 4. Www hrblock com Kathleen is employed as a teacher. Www hrblock com She is required to teach and meet with students at the school and to grade papers and tests. Www hrblock com The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Www hrblock com The school does not require her to work at home. Www hrblock com Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Www hrblock com She uses this home office exclusively and regularly for the administrative duties of her teaching job. Www hrblock com Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Www hrblock com Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Www hrblock com More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Www hrblock com Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Www hrblock com You must use the home office exclusively and regularly for one or more of the following purposes. Www hrblock com As the principal place of business for one or more of your trades or businesses. Www hrblock com As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Www hrblock com If your home office is a separate structure, in connection with one or more of your trades or businesses. Www hrblock com You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Www hrblock com e. Www hrblock com , personal) activities. Www hrblock com If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Www hrblock com See Rental to employer , later, if you rent part of your home to your employer. Www hrblock com Example. Www hrblock com Tracy White is employed as a teacher. Www hrblock com Her principal place of work is the school, which provides her office space to do her school work. Www hrblock com She also has a mail order jewelry business. Www hrblock com All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Www hrblock com If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Www hrblock com If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Www hrblock com As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Www hrblock com She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Www hrblock com Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Www hrblock com You physically meet with patients, clients, or customers on your premises. Www hrblock com Their use of your home is substantial and integral to the conduct of your business. Www hrblock com Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Www hrblock com Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Www hrblock com The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Www hrblock com Example. Www hrblock com June Quill, a self-employed attorney, works 3 days a week in her city office. Www hrblock com She works 2 days a week in her home office used only for business. Www hrblock com She regularly meets clients there. Www hrblock com Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Www hrblock com Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Www hrblock com The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Www hrblock com Example. Www hrblock com John Berry operates a floral shop in town. Www hrblock com He grows the plants for his shop in a greenhouse behind his home. Www hrblock com He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Www hrblock com Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Www hrblock com When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Www hrblock com Electing to use the simplified method. Www hrblock com   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Www hrblock com You choose whether or not to figure your deduction using the simplified method each taxable year. Www hrblock com See Using the Simplified Method , later. Www hrblock com Rental to employer. Www hrblock com   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Www hrblock com You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Www hrblock com However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Www hrblock com Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Www hrblock com You will also need to figure the percentage of your home used for business and the limit on the deduction. Www hrblock com If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Www hrblock com If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Www hrblock com Part-year use. Www hrblock com   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Www hrblock com For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Www hrblock com Expenses related to tax-exempt income. Www hrblock com   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Www hrblock com However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Www hrblock com No deduction is allowed for other expenses related to the tax-exempt allowance. Www hrblock com   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Www hrblock com Actual Expenses You must divide the expenses of operating your home between personal and business use. Www hrblock com The part of a home operating expense you can use to figure your deduction depends on both of the following. Www hrblock com Whether the expense is direct, indirect, or unrelated. Www hrblock com The percentage of your home used for business. Www hrblock com Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Www hrblock com Table 1. Www hrblock com Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Www hrblock com Deductible in full. Www hrblock com *   Examples:  Painting or repairs  only in the area  used for business. Www hrblock com Exception: May be only partially  deductible in a daycare facility. Www hrblock com See Daycare Facility , later. Www hrblock com Indirect Expenses for  keeping up and running your  entire home. Www hrblock com Deductible based on the percentage of your home used for business. Www hrblock com *   Examples:  Insurance, utilities, and  general repairs. Www hrblock com   Unrelated Expenses only for  the parts of your  home not used  for business. Www hrblock com Not deductible. Www hrblock com   Examples:  Lawn care or painting  a room not used  for business. Www hrblock com   *Subject to the deduction limit, discussed later. Www hrblock com Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Www hrblock com Certain expenses are deductible whether or not you use your home for business. Www hrblock com If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Www hrblock com These expenses include the following. Www hrblock com Real estate taxes. Www hrblock com Qualified mortgage insurance premiums. Www hrblock com Deductible mortgage interest. Www hrblock com Casualty losses. Www hrblock com Other expenses are deductible only if you use your home for business. Www hrblock com You can use the business percentage of these expenses to figure your total business use of the home deduction. Www hrblock com These expenses generally include (but are not limited to) the following. Www hrblock com Depreciation (covered under Depreciating Your Home , later). Www hrblock com Insurance. Www hrblock com Rent paid for the use of property you do not own but use in your trade or business. Www hrblock com Repairs. Www hrblock com Security system. Www hrblock com Utilities and services. Www hrblock com Real estate taxes. Www hrblock com   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Www hrblock com   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Www hrblock com Deductible mortgage interest. Www hrblock com   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Www hrblock com You can include interest on a second mortgage in this computation. Www hrblock com If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Www hrblock com For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Www hrblock com Qualified mortgage insurance premiums. Www hrblock com   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Www hrblock com You can include premiums for insurance on a second mortgage in this computation. Www hrblock com If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Www hrblock com For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Www hrblock com Casualty losses. Www hrblock com    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Www hrblock com A direct expense is the loss on the portion of the property you use only in your business. Www hrblock com Use the entire loss to figure the business use of the home deduction. Www hrblock com An indirect expense is the loss on property you use for both business and personal purposes. Www hrblock com Use only the business portion to figure the deduction. Www hrblock com An unrelated expense is the loss on property you do not use in your business. Www hrblock com Do not use any of the loss to figure the deduction. Www hrblock com Example. Www hrblock com You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Www hrblock com A storm damages your roof. Www hrblock com This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Www hrblock com You would complete Form 4684, Casualties and Thefts, to report your loss. Www hrblock com You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Www hrblock com Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Www hrblock com Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Www hrblock com Forms and worksheets to use. Www hrblock com   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Www hrblock com If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Www hrblock com You will also need to get Form 4684. Www hrblock com More information. Www hrblock com   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Www hrblock com Insurance. Www hrblock com   You can deduct the cost of insurance that covers the business part of your home. Www hrblock com However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Www hrblock com You can deduct the business percentage of the part that applies to the following year in that year. Www hrblock com Rent. Www hrblock com   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Www hrblock com To figure your deduction, multiply your rent payments by the percentage of your home used for business. Www hrblock com   If you own your home, you cannot deduct the fair rental value of your home. Www hrblock com However, see Depreciating Your Home , later. Www hrblock com Repairs. Www hrblock com   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Www hrblock com For example, a furnace repair benefits the entire home. Www hrblock com If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Www hrblock com   Repairs keep your home in good working order over its useful life. Www hrblock com Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Www hrblock com However, repairs are sometimes treated as a permanent improvement and are not deductible. Www hrblock com See Permanent improvements , later, under Depreciating Your Home. Www hrblock com Security system. Www hrblock com   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Www hrblock com You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Www hrblock com Utilities and services. Www hrblock com   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Www hrblock com However, if you use part of your home for business, you can deduct the business part of these expenses. Www hrblock com Generally, the business percentage for utilities is the same as the percentage of your home used for business. Www hrblock com Telephone. Www hrblock com   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Www hrblock com e. Www hrblock com , landline) is a nondeductible personal expense. Www hrblock com However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Www hrblock com Do not include these expenses as a cost of using your home for business. Www hrblock com Deduct these charges separately on the appropriate form or schedule. Www hrblock com For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Www hrblock com Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Www hrblock com Depreciation is an allowance for the wear and tear on the part of your home used for business. Www hrblock com You cannot depreciate the cost or value of the land. Www hrblock com You recover its cost when you sell or otherwise dispose of the property. Www hrblock com Before you figure your depreciation deduction, you need to know the following information. Www hrblock com The month and year you started using your home for business. Www hrblock com The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Www hrblock com The cost of any improvements before and after you began using the property for business. Www hrblock com The percentage of your home used for business. Www hrblock com See Business Percentage , later. Www hrblock com Adjusted basis defined. Www hrblock com   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Www hrblock com For a discussion of adjusted basis, see Publication 551. Www hrblock com Permanent improvements. Www hrblock com   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Www hrblock com Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Www hrblock com    You must carefully distinguish between repairs and improvements. Www hrblock com See Repairs , earlier, under Actual Expenses. Www hrblock com You also must keep accurate records of these expenses. Www hrblock com These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Www hrblock com However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Www hrblock com Example. Www hrblock com You buy an older home and fix up two rooms as a beauty salon. Www hrblock com You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Www hrblock com Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Www hrblock com However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Www hrblock com You cannot deduct any portion of it as a repair expense. Www hrblock com Adjusting for depreciation deducted in earlier years. Www hrblock com   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Www hrblock com If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Www hrblock com If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Www hrblock com   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Www hrblock com   If you deducted the incorrect amount of depreciation, see Publication 946. Www hrblock com Fair market value defined. Www hrblock com   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Www hrblock com Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Www hrblock com Figuring the depreciation deduction for the current year. Www hrblock com   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Www hrblock com   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Www hrblock com Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Www hrblock com For more information on MACRS and other methods of depreciation, see Publication 946. Www hrblock com   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Www hrblock com The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Www hrblock com The adjusted basis of your home (excluding land) on the date you began using your home for business. Www hrblock com The fair market value of your home (excluding land) on the date you began using your home for business. Www hrblock com Depreciation table. Www hrblock com   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Www hrblock com Table 2. Www hrblock com MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Www hrblock com 461% 2 2. Www hrblock com 247% 3 2. Www hrblock com 033% 4 1. Www hrblock com 819% 5 1. Www hrblock com 605% 6 1. Www hrblock com 391% 7 1. Www hrblock com 177% 8 0. Www hrblock com 963% 9 0. Www hrblock com 749% 10 0. Www hrblock com 535% 11 0. Www hrblock com 321% 12 0. Www hrblock com 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Www hrblock com See Publication 946 for the percentages for the remaining tax years of the recovery period. Www hrblock com Example. Www hrblock com In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Www hrblock com This room is 8% of the square footage of his home. Www hrblock com He bought the home in 2003 for $125,000. Www hrblock com He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Www hrblock com In May, the house had a fair market value of $165,000. Www hrblock com He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Www hrblock com The result is $9,200, his depreciable basis for the business part of the house. Www hrblock com George files his return based on the calendar year. Www hrblock com May is the 5th month of his tax year. Www hrblock com He multiplies his depreciable basis of $9,200 by 1. Www hrblock com 605% (. Www hrblock com 01605), the percentage from the table for the 5th month. Www hrblock com His depreciation deduction is $147. Www hrblock com 66. Www hrblock com Depreciating permanent improvements. Www hrblock com   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Www hrblock com Depreciate these costs as part of the cost of your home as explained earlier. Www hrblock com The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Www hrblock com Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Www hrblock com For improvements made this year, the recovery period is 39 years. Www hrblock com For the percentage to use for the first year, see Table 2, earlier. Www hrblock com For more information on recovery periods, see Publication 946. Www hrblock com Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Www hrblock com Use the resulting percentage to figure the business part of the expenses for operating your entire home. Www hrblock com You can use any reasonable method to determine the business percentage. Www hrblock com The following are two commonly used methods for figuring the percentage. Www hrblock com Divide the area (length multiplied by the width) used for business by the total area of your home. Www hrblock com If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Www hrblock com Example 1. Www hrblock com Your office is 240 square feet (12 feet × 20 feet). Www hrblock com Your home is 1,200 square feet. Www hrblock com Your office is 20% (240 ÷ 1,200) of the total area of your home. Www hrblock com Your business percentage is 20%. Www hrblock com Example 2. Www hrblock com You use one room in your home for business. Www hrblock com Your home has 10 rooms, all about equal size. Www hrblock com Your office is 10% (1 ÷ 10) of the total area of your home. Www hrblock com Your business percentage is 10%. Www hrblock com Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Www hrblock com Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Www hrblock com If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Www hrblock com Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Www hrblock com The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Www hrblock com These expenses are discussed in detail under Actual Expenses , earlier. Www hrblock com The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Www hrblock com If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Www hrblock com Carryover of unallowed expenses. Www hrblock com   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Www hrblock com They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Www hrblock com Figuring the deduction limit and carryover. Www hrblock com   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Www hrblock com If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Www hrblock com Example. Www hrblock com You meet the requirements for deducting expenses for the business use of your home. Www hrblock com You use 20% of your home for business. Www hrblock com In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Www hrblock com    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Www hrblock com You also can deduct all of your business expenses not related to the use of your home ($2,000). Www hrblock com Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Www hrblock com Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Www hrblock com You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Www hrblock com More than one place of business. Www hrblock com   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Www hrblock com In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Www hrblock com If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Www hrblock com For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Www hrblock com Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Www hrblock com In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Www hrblock com The area you use to figure your deduction is limited to 300 square feet. Www hrblock com See Simplified Amount , later, for information about figuring the amount of the deduction. Www hrblock com For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Www hrblock com R. Www hrblock com B. Www hrblock com 478, available at www. Www hrblock com irs. Www hrblock com gov/irb/2013-06_IRB/ar09. Www hrblock com html. Www hrblock com Actual expenses and depreciation of your home. Www hrblock com   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Www hrblock com You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Www hrblock com The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Www hrblock com If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Www hrblock com More information. Www hrblock com   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Www hrblock com R. Www hrblock com B. Www hrblock com 478, available at www. Www hrblock com irs. Www hrblock com gov/irb/2013-06_IRB/ar09. Www hrblock com html. Www hrblock com See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Www hrblock com Expenses deductible without regard to business use. Www hrblock com   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Www hrblock com These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Www hrblock com See Where To Deduct , later. Www hrblock com If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Www hrblock com No deduction of carryover of actual expenses. Www hrblock com   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Www hrblock com Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Www hrblock com Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Www hrblock com Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Www hrblock com An election for a taxable year, once made, is irrevocable. Www hrblock com A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Www hrblock com Shared use. Www hrblock com   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Www hrblock com More than one qualified business use. Www hrblock com   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Www hrblock com More than one home. Www hrblock com   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Www hrblock com You must figure the deduction for any other home using actual expenses. Www hrblock com Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Www hrblock com To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Www hrblock com The allowable area of your home used in conducting the business. Www hrblock com If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Www hrblock com The gross income from the business use of your home. Www hrblock com The amount of the business expenses that are not related to the use of your home. Www hrblock com If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Www hrblock com To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Www hrblock com Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Www hrblock com See Allowable area and Space used regularly for daycare , later. Www hrblock com Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Www hrblock com If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Www hrblock com See Gross income limitation , later. Www hrblock com Take the smaller of the amounts from (1) and (2). Www hrblock com This is the amount you can deduct for this qualified business use of your home using the simplified method. Www hrblock com If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Www hrblock com If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Www hrblock com Allowable area. Www hrblock com   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Www hrblock com Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Www hrblock com You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Www hrblock com Area used by a qualified joint venture. Www hrblock com   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Www hrblock com Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Www hrblock com Then, each spouse will figure the allowable area separately. Www hrblock com For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Www hrblock com Shared use. Www hrblock com   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Www hrblock com You must allocate the shared space between you and the other person in a reasonable manner. Www hrblock com Example. Www hrblock com Kristin and Lindsey are roommates. Www hrblock com Kristin uses 300 square feet of their home for a qualified business use. Www hrblock com Lindsey uses 200 square feet of their home for a separate qualified business use. Www hrblock com The qualified business uses share 100 square feet. Www hrblock com In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Www hrblock com If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Www hrblock com More than one qualified business use. Www hrblock com   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Www hrblock com Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Www hrblock com However, do not allocate more square feet to a qualified business use than you actually use for that business. Www hrblock com Rental use. Www hrblock com   The simplified method does not apply to rental use. Www hrblock com A rental use that qualifies for the deduction must be figured using actual expenses. Www hrblock com If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Www hrblock com You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Www hrblock com Part-year use or area changes. Www hrblock com   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Www hrblock com You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Www hrblock com When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Www hrblock com Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Www hrblock com Example 1. Www hrblock com Andy files his federal income tax return on a calendar year basis. Www hrblock com On July 20, he began using 420 square feet of his home for a qualified business use. Www hrblock com He continued to use the 420 square feet until the end of the year. Www hrblock com His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Www hrblock com Example 2. Www hrblock com Amy files her federal income tax return on a calendar year basis. Www hrblock com On April 20, she began using 100 square feet of her home for a qualified business use. Www hrblock com On August 5, she expanded the area of her qualified use to 330 square feet. Www hrblock com Amy continued to use the 330 square feet until the end of the year. Www hrblock com Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Www hrblock com Gross income limitation. Www hrblock com   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Www hrblock com If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Www hrblock com Business expenses not related to use of the home. Www hrblock com   These expenses relate to the business activity in the home, but not to the use of the home itself. Www hrblock com You can still deduct business expenses that are unrelated to the use of the home. Www hrblock com See Where To Deduct , later. Www hrblock com Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Www hrblock com Space used regularly for daycare. Www hrblock com   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Www hrblock com The reduced rate will equal the prescribed rate times a fraction. Www hrblock com The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Www hrblock com You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Www hrblock com    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Www hrblock com Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Www hrblock com To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Www hrblock com You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Www hrblock com You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Www hrblock com You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Www hrblock com Figuring the deduction. Www hrblock com   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Www hrblock com    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Www hrblock com If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Www hrblock com   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Www hrblock com A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Www hrblock com You do not have to keep records to show the specific hours the area was used for business. Www hrblock com You can use the area occasionally for personal reasons. Www hrblock com However, a room you use only occasionally for business does not qualify for the deduction. Www hrblock com To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Www hrblock com You can compare the hours of business use in a week with the number of hours in a week (168). Www hrblock com Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Www hrblock com If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Www hrblock com Example 1. Www hrblock com Mary Lake used her basement to operate a daycare business for children. Www hrblock com She figures the business percentage of the basement as follows. Www hrblock com Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Www hrblock com During the other 12 hours a day, the family could use the basement. Www hrblock com She figures the percentage of time the basement was used for daycare as follows. Www hrblock com Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Www hrblock com 25%           Mary can deduct 34. Www hrblock com 25% of any direct expenses for the basement. Www hrblock com However, because her indirect expenses are for the entire house, she can deduct only 17. Www hrblock com 13% of the indirect expenses. Www hrblock com She figures the percentage for her indirect expenses as follows. Www hrblock com Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Www hrblock com 25% Percentage for indirect expenses 17. Www hrblock com 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Www hrblock com In Part II, Mary figures her deductible expenses. Www hrblock com She uses the following information to complete Part II. Www hrblock com Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Www hrblock com (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Www hrblock com ) The expenses she paid for rent and utilities relate to her entire home. Www hrblock com Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Www hrblock com She shows the total of these expenses on line 22, column (b). Www hrblock com For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Www hrblock com Mary paid $500 to have the basement painted. Www hrblock com The painting is a direct expense. Www hrblock com However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Www hrblock com 25% – line 6). Www hrblock com She enters $171 (34. Www hrblock com 25% × $500) on line 19, column (a). Www hrblock com She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Www hrblock com This is less than her deduction limit (line 15), so she can deduct the entire amount. Www hrblock com She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Www hrblock com She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Www hrblock com Example 2. Www hrblock com Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Www hrblock com Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Www hrblock com Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Www hrblock com The basement and room are 60% of the total area of her home. Www hrblock com In figuring her expenses, 34. Www hrblock com 25% of any direct expenses for the basement and room are deductible. Www hrblock com In addition, 20. Www hrblock com 55% (34. Www hrblock com 25% × 60%) of her indirect expenses are deductible. Www hrblock com Example 3. Www hrblock com Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Www hrblock com She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Www hrblock com During the other 12 hours a day, the family could still use the basement. Www hrblock com She figures the percentage of time the basement was used for business as follows. Www hrblock com Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Www hrblock com 71%           Mary can deduct 35. Www hrblock com 71% of any direct expenses for the basement. Www hrblock com However, because her indirect expenses are for the entire house, she can deduct only 17. Www hrblock com 86% of the indirect expenses. Www hrblock com She figures the percentage for her indirect expenses as follows. Www hrblock com Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Www hrblock com 71% Percentage for indirect expenses 17. Www hrblock com 86% Meals. Www hrblock com   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Www hrblock com Claim it as a separate deduction on your Schedule C (Form 1040). Www hrblock com You can never deduct the cost of food consumed by you or your family. Www hrblock com You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Www hrblock com However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Www hrblock com For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Www hrblock com   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Www hrblock com   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Www hrblock com If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Www hrblock com If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Www hrblock com Do not include payments or expenses for your own children if they are eligible for the program. Www hrblock com Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Www hrblock com Standard meal and snack rates. Www hrblock com   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Www hrblock com For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Www hrblock com Family daycare is childcare provided to eligible children in the home of the family daycare provider. Www hrblock com The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Www hrblock com Eligible children are minor children receiving family daycare in the home of the family daycare provider. Www hrblock com Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Www hrblock com Eligible children do not include children who receive daycare services for personal reasons of the provider. Www hrblock com For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Www hrblock com   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Www hrblock com You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Www hrblock com If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Www hrblock com   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Www hrblock com If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Www hrblock com However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Www hrblock com   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Www hrblock com The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Www hrblock com This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Www hrblock com   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Www hrblock com These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Www hrblock com     Table 3. Www hrblock com Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an