I was reading about the home office deduction & got confused: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction.
What does it mean that our home office rent is tax-deductible as a business expense? Does it mean that we pay the full rent using our personal bank account then take the home office space rent as a deduction on our personal income? Or does it mean that we’re allowed to pay a portion of the rent using our business account (depending on home office %)?
I would assume it's the latter because why wouldn't the IRS let you pay for a business expense using funds from the business.
if self-employed, (file a schedule C or are a partner in a partnership schedule e) a portion of your occupancy expenses are tax deductible. this is based on the ratio of of business square footage used exclusively and regularly for business to total square footage of your residence whether you rent or own
whether you pay it with personal funds or business funds is irrelevant. there is also a safe harbor election where if you meet the exclusive and business use rules up the lesser of actual square footage or 300 sq feet qualify at a fixed rate of $5/sq foot. .
If you are filing a schedule C for the business it is a disregarded entity. It doesn't matter which bank account or credit card you use to pay business expenses or personal expenses. It's all yours in the first place.
If the business bank account is used to pay a portion of the rent on the house you live in, but also run your business from, say $500 per month ($6K/year), and you are deducting, say 20% of the square footage of the house, can you claim the 6K in "business rent" an expense (subtracted from your taxable income)? That seems like a double-deduction for the same thing.
@cxw wrote:
If the business bank account is used to pay a portion of the rent on the house you live in, but also run your business from, say $500 per month ($6K/year), and you are deducting, say 20% of the square footage of the house, can you claim the 6K in "business rent" an expense (subtracted from your taxable income)? That seems like a double-deduction for the same thing.
The way you describe would be a double deduction because you are thinking about it in the wrong way. When you are a schedule C business (a disregarded entity, sole proprietorship or single member LLC), you ARE the business and the business is you. All your money is yours. Paying expenses from the business bank account does not make them business expenses. It is sensible and good accounting practice to keep separate accounts, but if you buy groceries from the business account that does not mean they are business expenses, and if you buy business supplies from your personal account that does not mean they are not business expenses.
If you pay your home rent from your business account, that by itself does not make it a business expense and it is not deductible as such. The only dollar amount that is a deductible expense is the amount you calculate using the home office deduction method**, and that is the deductible amount no matter what account you pay it from.
(**There are two methods, the safe harbor that gives you $5 per square foot, and the actual expense method which allows you to deduct rent, utilities, repair, insurance, and depreciation on a percentage basis, but which creates a tax issue when you sell your home. If you rent an apartment, because your insurance only covers contents and you aren't responsible for repairs or depreciation, the safe harbor method may be better as well as easier, but you will have to work that out for yourself.)