A Tricky Thing called Office Expense

There is a tricky type of expense called "Office Expense". This item is mostly interpreted as the place/location you work out of. This can be an office location you are renting, or it can be a room in your house if you don't rent an office space outside your home. However for tax purposes, "Office Expense" actually encompasses a bunch of other type of costs pertaining to running your office. For example, your internet service can be considered an office expense. Also supplies you buy, such as paper plates, cups, toilet paper, etc are part of your office expense. Office supplies such as ink, paper and other types of office supplies can be part of your office expense. For IRS purposes you can group this bunch together as Office Expense. However most business people want to keep track of these items separately for bookkeeping.

Now, if you are renting office space, obviously you are going to track the rent payment as your office expense, or maybe you will call it office rent. The choice of description for this item is yours when you set up your books. For IRS purposes, it is considered rent expense.

The problem comes in when the office you use is in your home. The IRS rules state that the room you use should be a separate area in your house. It does not necessarily have to be a separate room, just an area within your house.

Now, just how would you track this for bookkeeping? The answer is that most small business owners who are working from their home office do not enter this as a separate expense on their books. They simply calculate that when tax time comes.

Next, what exactly goes into the calculation of a home office?