Can a Sole Proprietor Write Off a Home Office?

By Tom Streissguth

Running a business as a sole proprietor means that, for tax purposes, you and the business are one and the same. You pay taxes on the business income just as you would as an individual, and the income is reported on the tax return you file every year. The IRS allows the same expense deductions you would normally take as a self-employed individual working at home.

Running a business as a sole proprietor means that, for tax purposes, you and the business are one and the same. You pay taxes on the business income just as you would as an individual, and the income is reported on the tax return you file every year. The IRS allows the same expense deductions you would normally take as a self-employed individual working at home.

Filing Status

Because the IRS considers sole proprietors the same as self-employed workers, a sole proprietor reports revenue and expenses on IRS Form 1040 Schedule C, Profit or Loss From Business. The business' net income carries over from Schedule C to Form 1040. A sole proprietor also completes Form 1040 Schedule SE for the payment of self-employment taxes. The tax rate a sole proprietor pays depends on how much total income he has during the tax year and his filing status as an individual.

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Home Office Deductions

The IRS allows sole proprietors to deduct their ordinary and necessary business expenses, including the use of an office or workspace in the home. A sole proprietor can deduct various expenses related to the office, including rent, utilities, mortgage interest, cost of repairs and depreciation. Also deductible are furniture, computers, office supplies and transportation expenses incurred when going to and from the home office for business purposes.

Exclusive Use

In order to deduct expenses for use of a home office, a sole proprietor must use that designated place in the home only as a place of business. The sole proprietor may have other offices or workplaces, such as a workshop, warehouse or satellite office, but the office in the home must get regular and exclusive use as a place of business.

Designated Space

The home office can be in a rented apartment or a home that you own. It does not have to be designed specifically as an office; it can be an extra bedroom that has been converted for office use, or a basement space that was previously used for home storage. A sole proprietor can take a deduction for use of a separate structure on the property, such as a freestanding studio, converted carriage house or second story space over a garage.

Calculations

To calculate the home office deduction for a sole proprietorship, take each expense and apportion it to the space your office occupies. For example, if the office takes up 10 percent of your home's floor space, you may deduct 10 percent of the total rent for use by the office. You would apply the same calculation to utility payments and mortgage interest if you are a homeowner.

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Deductible Expenses in a Sole Proprietorship

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What Can an LLC Deduct?

The only time a limited liability company is responsible for remitting federal income tax payments is if the members elect to treat it as a corporation for tax purposes. If the LLC members do not elect corporate tax treatment, each member is responsible for reporting a portion of the LLC's income and deductions. Regardless of how you classify the LLC for tax purposes, the business is eligible to deduct a wide range of business expenses.

Deduction Categories for a Sole Proprietor

A sole proprietorship is just a business owned by a single individual. The earnings, expenses, profits and losses of a business need to be reported on the individual owner’s state and federal tax returns. The Internal Revenue Service provides a form, Schedule C, for reporting business-related income and deductions. The IRS also provides the sole proprietor with several categories of tax deductions related to running the business and being self-employed.

What Can You Write Off on Taxes for an LLC?

The Internal Revenue Service treats LLCs differently for tax purposes than other types of entities insofar as members can choose the type of taxation to apply. The LLC is not liable for federal income taxes unless you elect to treat it as a corporation. Otherwise, the members are each responsible for a portion of the tax. However, the same business deductions available to a corporation are available to the individual members on a pro-rata basis.

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