2003 Tax Help Archives  

Keyword: Home Office

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.


11.1 Sale or Trade of Business, Depreciation, Rentals: Depreciation & Recapture


I purchased a computer last year to do online day trading part-time from home for additional income. Can I deduct or depreciate the cost of the computer or internet connection from my investment income?

You may deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Form 1040, Schedule A (PDF), line 22, Itemized Deductions. This would include depreciation on the portion of your computer used for investment purposes, and the portion of your internet access charges used for investment purposes.

A deduction for depreciation of a computer for business use can be expensed in the first year if qualified, or depreciated over the recovery period. To claim the expense in the first year, the property must be used more than 50% for business use, and meet the other requirements for expensing.

The 2003 Jobs and Growth Act raised the aggregate cost that can be expensed for any tax year beginning after 2002 and before 2006 to $100,000. The new law also expanded the definition of Code Section 179 property to include off-the-shelf computer software. See Code Section 179 for the expanded definition. If the business use falls to 50% or less in a later year, these tax benefits may be subject to recapture. See Publication 946 , How to Depreciate Property for additional information on the special deduction.

These deductions must be reduced by 2% of your adjusted gross income. Use Form 4562 (PDF), Depreciation and Amortization, to compute the depreciation for the portion of your computer used for investment purposes.

Note: Unless the computer is used more than 50% for business purpose (as opposed to investment purposes), you cannot claim section 179 expensing of the computer or claim accelerated depreciation for it. For more information, refer to "Listed Property" in Publication 946, How to Depreciate Property.

References:

I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won't be affected?

If you have qualified business use of your home and enough gross income from that business use to that entitle you to a depreciation deduction, you are required to reduce your basis in the home by the amount of depreciation allowed (deducted) or allowable (could have been deducted).

Whether you choose to deduct the depreciation on your current return(s) will not matter. For tax purposes, you will still be treated as if you had taken the allowable deduction, and your basis will have to be reduced. For more information, refer to Publication 946, How to Depreciate Property, Publication 544, Sales and Other Dispositions of Assets, and Publication 587, Business Use of Your Home.

References:

12.3 Small Business/Self-Employed/Other Business: Form W–2, FICA, Medicare, Tips, Employee Benefits


Does a household employer have to pay social security and Medicare for all household employees if only one employee makes more than $1,400 in the year?

No. The employer only has to pay social security and Medicare tax for the employee(s) who receive $1,400 or more in wages for the year. If the amount paid to any employee in a calendar year is less than $1,400, no social security or Medicare tax is owed for that employee. If social security and Medicare tax must be paid, the employee's portion of the social security and Medicare tax should be withheld also, unless the employer chooses to pay both the employer's share and the employee's share.

References:

  • Publication 926, Household Employer's Tax Guide; Do You Need to Pay Employment Taxes?
  • Tax Topic 756, Employment Taxes for Household Employees

12.7 Small Business/Self-Employed/Other Business: Income & Expenses


I use my home for business. Can I deduct the expenses?

To deduct expenses related to the business use of part of your home, you must meet specific requirements. Even then, your deduction may be limited.

Your use of the business part of your home must be:

  • Exclusive (see *exceptions below),
  • Regular,
  • For your trade or business, AND
  • The business part of your home must be one of the following:

  • Your principal place of business,
  • A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or
  • A separate structure (not attached to your home) you use in connection with your trade or business.
  • Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction use. You must meet the tests discussed above plus:

  • Your business use must be for the convenience of your employer, and
  • You do notrent any part of your home to your employer and use the rented portion to perform services as an employee.
  • Whether the business use of your home is for your employer's convenience depends on all the facts and circumstances. However, business use is not considered to be for your employer's convenience merely because it is appropriate and helpful.

    *exceptions

    You do not have to meet the exclusive use test if either of the following applies.

  • You use part of your home for the storage of inventory of product samples.
  • You use part of your home as a day-care facility.
  • Form 1040, Schedule C (PDF) filers calculate the business use of home expenses and limits on Form 8829 (PDF) . The deduction is claimed on line 30 of Schedule C. Employees claim deduction for business use of home as an itemized deduction on Form 1040, Schedule A (PDF) .

    For more information refer to Tax Topic 509 , Business Use of Home, or Publication 587 , Business Use of Your Home (Including Use by Day-Care Providers).

    References:

    I use part of my living room as an office. Can I take a deduction for business use of my home?

    In general, if you use a part of your home for both personal and business purposes, no expenses for business use of that part are deductible. Exceptions apply for qualified day-care providers and for the storage of inventory or product samples used in your business. For additional information on business use of your home, refer to Tax Topic 509, or Publication 587, Business Use of Your Home (Including Use by Day-Care Providers).

    References:

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