Excel Spreadsheet For Tax Preparation

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Tom Summery has been a CPA for over a decade. In his spare time, he writes articles to convey his expert knowledge of tax and accounting. Thomas has a wide range of in-depth knowledge on 1099 tax and financial topics. You can find him fishing when he’s not preparing taxes for clients His or writing about accounting.

Excel Spreadsheet For Tax Preparation

Excel Spreadsheet For Tax Preparation

The home office deduction is one of the most important tax benefits of running a small business outside the home. While the tax benefit will often be enough to prevent you from moving into dedicated office space once the need arises, it should be taken advantage of beforehand. Many freelancers tend to work from a home office at first, but often overlook the tax breaks available.

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As with all tax deductions, there is some record keeping in order to accurately claim your home office tax deduction. Most people turn to a home office deductions worksheet just for the final calculations.

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There are two requirements to qualify for the home office deduction. First, you must regularly use part of your home solely to conduct business. Second, your home must be your principal place of business.

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The IRS has created six cases that meet the definition of “running a business exclusively” in part of your home:

Be sure to meet these requirements as many people took advantage of this discount when it first appeared. You don’t want to risk an IRS audit of your home office deduction.

Expenses that can be included in the home office tax deduction are called qualified expenses. Qualifying expenses include all expenses for business use of your home. Generally, you can’t deduct expenses for parts of your home that aren’t used for business.

Excel Spreadsheet For Tax Preparation

For example, if you host clients at your home, landscaping expenses are still not deductible because while landscaping can provide a more professional appearance to your home, it is not a part of your home that is actually used for business.

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There are two ways to calculate your deductible, and choosing the right method is entirely based on your situation. The methods are called the simple option and the normal method. Choosing the most suitable method is based on how much your home is used for business and what are the annual expenses of your business in the home office. This will not only determine the total amount available for deduction, but also whether it is worth the effort required for the regular method.

Calculating the simple home office deduction is simple, easy to use and requires minimal documentation. It was introduced for tax years beginning on or after 1 January 2013 for this very reason. The regular method can be considered too burdensome for small home businesses, so many home businesses have found it cheaper not to take the deduction but also not pay for the additional registration required.

It is important to note that choosing the simple option does not change the criteria for your eligibility for a home office deduction in general.

The standard method uses actual expenses to determine the applicable tax deduction amount. This means you’ll need to keep track of your home office’s ongoing expenses, which will include expenses such as mortgage interest, insurance, utilities, general home repairs, and depreciation.

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Along with tracking these expenses, you’ll need to divide your deductible based on the percentage of your home that you’ve used.

Tracking all relevant expenses can be handled using your current accounting system, whether you do it yourself in Excel, use accounting software, or hire someone to handle it for you. As with all tax deductions that require documentation, you’ll need to be sure to keep receipts for your expenses.

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Excel Spreadsheet For Tax Preparation

Can keep you from leaving money on the table when tax season begins by helping you maximize your deductions. Most of our users save at least $5,600 on their tax bill. Claim yours

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If you already track your expenses yourself, then using a spreadsheet with all the calculations built in should be a simple process. If the spreadsheet has the necessary built-in calculations, then you should remember some tax definitions. As always, it is recommended that you speak with a tax professional whenever you have questions. They can also check your work for you.

Under the regular method, you would track all of your home expenses, and the deduction related to your home office is based on the portion of your home used for business purposes. To begin, you need to determine how much of your home is used for business.

If you use an entire room, then you can take the square footage of your entire room to determine what percentage of your home is used for business. If you only use part of the room, then you can only use the business part of the room.

Since smaller areas, such as table areas, can be relatively small, these situations are often better served by the simple method. Either way, the calculation is the area of ​​your dedicated office space divided by the total area of ​​your home.

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Ensuring the accuracy of this calculation is essential to most of the additional calculations required to claim this deduction.

To determine your allowable deduction, it is essential to understand the difference between direct and indirect expenses.

Direct expenses are expenses directly related to your business. While this is a slight oversimplification, the easiest way to think about direct expenses is to ask yourself this question – “Would I take these expenses into the household if I didn’t have a business?”

Excel Spreadsheet For Tax Preparation

For example, if you have a dedicated business phone line, then this counts as a direct expense. If you didn’t have a business, then you didn’t have a dedicated business phone line.

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Indirect expenses are those that would exist even if you didn’t have a business. For example, you will pay real estate taxes on your home and insurance on your home, whether or not you have a business outside of it.

Understanding the difference is important because you can typically deduct 100% of your direct expenses, but your indirect expenses are determined based on the percentage of your home that is used for business. If you pay $100 in real estate taxes and use 10% of your home for business purposes, your home office deduction for real estate taxes is $10 (10% of $100).

On the income tax form, this section focuses on four categories of expenses: casualty losses, deductible mortgage interest, and real estate taxes. For the most part, they will all be indirect costs, but there may be situations where there are direct casualty losses.

The next step is to determine your deductible limit. There are clearly defined limits on the amount of your home office deduction. Your deduction cap is based on your gross business income. If you generate more gross income from the business than your total expenses, then you can deduct all of your expenses. If your expenses exceed your gross income, then you won’t be able to deduct all of your expenses.

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Similar to determining your allowable deduction, determining your deduction cap will involve direct and indirect expense calculations. The IRS has defined the following categories of expenses for this calculation: excess mortgage interest, excess real estate taxes, insurance, rent, repairs and maintenance, utilities and other expenses.

When looking at the “other expenses” category, remember that this is only about home office expenses. This is not for all other business expenses. This is dealt with elsewhere on your tax return.

The last part of your deduction limit is any home office transfer deduction from the previous year. Because your limit is tied to your gross business income, there may be years when you can’t take your full deduction. You don’t lose your excess – it carries over to the next year.

Excel Spreadsheet For Tax Preparation

The last part of the worksheet involves some additional calculations, but all the information needed is something you’ll already have from last year’s tax returns or a one-time calculation. Your transfer details will be on your previous tax return. The depreciation of your home is calculated using the MARCS depreciation table provided by the IRS.

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