WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby Tax Savings with the Lost Home Office Deduction, Part 1 Although working from home is more and more common, merely hav- ing a home office or space within the home used as an office doesn’t mean an automatic tax deduction for the expenses of operating it. And today, thanks to the Tax Cuts and Jobs Act (TCJA), even employees of their own drilling business, can no longer claim those home office expenses which have long been a miscellaneous itemized deduction. However, anyone who is self-employed or runs a business from home using part of their home for business purposes may still use the home office expense deduction. Although expenses for the nonbusiness portion of the home are not deductible, expenses for such things as the business portion of real estate taxes, mortgage interest, rent, casualty losses, insurance, depreciation, maintenance, and repairs are deductible home office expenses. In gener- al, expenses for the parts of the home not used for business purposes are not tax deductible. Every drilling professional thinking about qualifying for and claiming the home office expense deduction has two options. The first option - “regular method” - requires com- puting the business use by dividing the expenses of operat- ing the home between personal and business use. Direct business expenses are, obviously, fully deductible with the percentage of the home’s floor space used for business applied to indirect total expenses. The second - “safe harbor” or “simplified method” - reduces the paperwork and recordkeeping burden. The sim- plified method uses a flat rate of $5 per square foot for busi- ness use of the home. There is a maximum al lowable deduction based on up to 300 square feet, which places a ceiling on the total amount deductible as a home office expense at $1500. It’s worth noting, the TCJA did not change the home office expense deduction rules for the self-employed. Anyone who is self-employed can continue to deduct all qualifying home office expenses. What’s more, the same home office can be used as the principal place of business for multiple trades or businesses. Of course, the determina- tion of whether the office qualifies for the deduction is made separate for each business. Fortunately, a legion of professional advisors stands ready to help every self-employed drilling professional and business owner as they attempt to navigate the complex and often confusing rules surrounding the home office expense deduction - and the tax saving possibilities. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com 19 WorldWide Drilling Resource ® FEBRUARY 2019