What is reasonable for a home based business to charge itself for rent?

sheldon_koggs asked:

I am 1 of the 2 partners in a home based business which currently is run out of my partner

4 Responses to “What is reasonable for a home based business to charge itself for rent?”

  1. tidww Says:

    The IRS guidelines basically say add up the total square footage of the home and then the space for the business. Divide and you get a percentage. Multiple the total utilites and mortgage/rent by that percentage. The space has to be used only for business and some utilities are not deductable, primarily phone if memory serves because you would have it with or without the business.

  2. Accent International Traders Says:

    tidww is exactly right, I just wanted to reiterate that the offices space CANNOT be used for anything other than business.

  3. Donny Says:

    Both tid and Accent (above) have good answers. There are other considerations based on what kind on legal entity you are. For example, in a partnership the K-1 form could report an expense to you, but income to your partner above the actual expense of maintaining your work space. If you are a corporation, then the solution is a little more complicated, but feasible since your partner could charge the business rent OR have a payment incorporated into his salary for compensation for the anticipated expense. Ether way, it is recorded as a tax deductible expense (as it should be) for doing business in your partners home.

  4. NALI Says:

    Although it is completely legal to use a home based office as a tax write off, be aware that it is one of the HUGEST RED FLAGS in a home based business. The IRS has very specific guidelines that need to be followed and unless you plan to follow your deductions to the T… don’t do it. Look for other things that don’t send up red flags!

    Just word of advise given to me by our tax attorneys.

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