Question

Kathleen is employed full-time as a corporate tax accountant, working for a large public utility. At the start of the prior year (1/1/2019), she started a private consulting practice, which provides tax advice and financial planning to the general public. For this purpose, she maintains a home office. During 2020, Kathleen spent $1,000 to purchase furniture that is used exclusively in the home office. In addition, other expenses relating to her home for 2020 are as follows:

                              Real property taxes                                                                                 $     3,000

                              Home mortgage interest                                                                                 4,000

                              Home operating expenses 2,000  

                  Kathleen’s residence cost $700,000 (excluding land) and has living space of 4,500 square feet, of which 270 square feet is devoted to her consulting practice. Kathleen did not have an unused home office deduction from the prior year. Presuming sufficient net income from her consulting practice, showing your computations using good form, determine the amount of Kathleen’s home office deduction using the:

a.     Regular Method.

b.    Simplified Method.

Answer 1

b.    Simplified Method. Deductions:

Allowable Square foot Usage (Max.300 SQ.Feet) @$5 per sq feet =5*270 = $1350

Furniture Exclusively for Home Office = $1000

total for Home OFfice Deductions = $2350

Home Related Itemized Deductions Claimed in full on Schedule A

a.     Regular Method. Deductions:

Business use (square footage) = 270 Sq Feet

Total square footage of home = 4500 Sq Feet

Business use % (270/4500) = 6%

Furniture Exclusively for Home Office =$1000

Sq Foot Usage (6% of 700000) =$42000

Home Related Itemized Deductions =$ 540

(6% of 9000)

Total =$43540