With business bookkeeping and basic tax tips for new and old entrepenuers

Tuesday, February 24, 2009

How the Home Office calculation works

From: Business School 101

and Alamo Bookkeeping Associates

Here is how it works. You take the total square footage of your house. Then you calculate the square footage of the office space you are using, whether this is a separate room or an area of a room. Lets say you are using a 10 foot by 10 foot room and your house is 1000 square feet total. The area you are using is 100 square feet (10 times 10).

Take 100 divided by 1000 and you get .10 or 10 percent.

Then you total all your expenses listed. For example.

Electricity 2000, Water 500, Insurance 1000, total 3500.

Now take the 3500 and multiply by .10 (10 percent).

You get to deduct $350.00 for your home office on your tax return as an expense. This may not sound like much but as they say, every little bit helps.

Most people don't actually enter this number on their accounting books, they put it on the personal tax return. However, the moral of the story is, keep your utility and insurance bills. Don't throw them away if you have a home office.

Next: So how do I set up a set of books?

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