Today it’s becoming more common to work from home. But just because you have a home office space doesn’t mean you can deduct expenses associated with it.
If you’re an employee, your use of your home office must be for your employer’s convenience, not just your own. If you’re self-employed, generally your home office must be your principal place of business, though there are exceptions.
Whether you’re an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with that space.
A valuable break
If you are eligible, the home office deduction can be a valuable tax break. You may be able to deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space.
Or you can take the simpler “safe harbor” deduction in lieu of calculating, allocating and substantiating actual expenses. The safe harbor deduction is capped at $1,500 per year, based on $5 per square foot up to a maximum of 300 square feet.
For employees, home office expenses are a miscellaneous itemized deduction. This means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses exceed 2% of your adjusted gross income (AGI).
If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income.
Finally, be aware that we’ve covered only a few of the rules and limits here. If you think you may be eligible for the home office deduction, contact us for more information.
Byron: Hi, my name is Byron Hebert and this is another Tool Time Update brought to you by your friends at PKF Texas and the Entrepreneur’s Playbook. We’ve been talking about Birkman and all the various tools that that provides us to use in our organization for people development and getting the right people in the right place. We’re going to talk about the lifestyle grid today; this is the second Tool Time Update on the lifestyle grid and if you remember we talked about how the green and blue are more people oriented, our red and yellow are more task oriented people, yellow and blue are indirect communicators, red and green are more direct communicators.
We’re going to talk today about where we may see a conflict in our organization. We noticed that if I have someone in the red zone here they can relate to the green because they’re both direct communicators, right? They can also relate to the person in yellow because they’re task oriented. But the blue, there’s where you may have a conflict if you have someone in this area this person is going to be much slower to makes decisions, more strategy oriented; this is going to be more action oriented; so there could be a conflict in there, a natural conflict between these two.
Same with your yellow and green; you’ve got the communicator, the persuader. You’ve got the task person here, the procedure oriented person. These two may naturally be in conflict because this person is going to want to go make the sale, this one’s going to be concerned about do we communicate it right, do we document everything; is the sale getting made properly? Just an indication of where you could have conflict within your organization and how the lifestyle grid in Birkman will help you see that before it comes. Again, my name is Byron Hebert and this has been another Tool Time Update brought to you by your friends at PKF Texas and the Entrepreneur’s Playbook.
Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017.
The break had expired December 31, 2014, for most assets. So the PATH Act may give you a tax-saving opportunity for 2015 you wouldn’t otherwise have had. Many businesses will benefit from claiming this break on their 2015 returns. But you might save more tax in the long run if you forgo it.
What assets are eligible
For 2015, new tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified leasehold-improvement property.
Acquiring the property in 2015 isn’t enough, however. You must also have placed the property in service in 2015.
Should you or shouldn’t you?
If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.
But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2015, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re in a higher bracket.
We can help
If you’re unsure whether you should take bonus depreciation on your 2015 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us.
We are pleased to announce several of our Directors have recently been appointed to key leadership roles within the business community.
- Kenneth Guidry, CPA, President, was appointed Chair of the Audit and Risk Committee of the Greater Houston Partnership, an organization where business leaders can have influence on Houston’s growth and future. The committee is responsible for the oversight of the financial reporting process, the audit process and enterprise risk management.
- Ryan Istre, CPA, will serve on the leadership team of the Greater Houston Partnership’s Business Development Program, where he will co-facilitate meetings and assist in the planning of speakers and topics for the monthly agenda.
- Chris Hatten, CPA, who serves both on the Houston Chapter Board and Young Professional’s Board for the Turnaround Management Association (TMA), was appointed as Treasurer of the Houston chapter. TMA seeks to strengthen the global economy through turnaround management, corporate restructuring and distressed investing.
- Michael Veuleman, CPA, is now a board and executive committee member, as well as the treasurer for the East End Chamber of Commerce, where he is dedicated to serving the education needs in the East Houston area.
“We are thrilled to have so many members of our team in positions of influence in these local organizations,” said Guidry, “PKF Texas is proud to have an impact on our thriving and vibrant business community.”
By purchasing stock in certain small businesses, you can not only diversify your portfolio but also enjoy preferential tax treatment. And under a provision of the tax extenders act signed into law this past December (the PATH Act), such stock is now even more attractive from a tax perspective.
100% exclusion from gain
The PATH Act makes permanent the exclusion of 100% of the gain on the sale or exchange of qualified small business (QSB) stock acquired and held for more than five years. The 100% exclusion is available for QSB stock acquired after September 27, 2010. (Smaller exclusions are available for QSB stock acquired earlier.)
The act also permanently extends the rule that eliminates QSB stock gain as a preference item for alternative minimum tax (AMT) purposes.
What stock qualifies?
A QSB is generally a domestic C corporation that has gross assets of no more than $50 million at any time (including when the stock is issued) and uses at least 80% of its assets in an active trade or business.
Many factors to consider
Of course tax consequences are only one of the many factors that should be considered before making an investment. Also, keep in mind that the tax benefits discussed here are subject to additional requirements and limits. Consult us for more details.
For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat. But it had expired December 31, 2014. Now the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) has made the break permanent.
So see if you can save more by deducting sales tax on your 2015 return. Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases.
Questions about this or other PATH Act breaks that might help you save taxes on your 2015 tax return? Contact us — we can help you identify which tax breaks will provide you the maximum benefit.