Question

In connection with the office use in the home deduction, comment on the following:

a. The exclusive use requirement.
b. The distinction between direct and indirect expenses.
c. The effect on deduction of taxpayer's work status i.e. employed or self employed.
d. The ownership status of residence i.e. owned or rented.
e. The tax treatment of office furnishings i.e. desk, chairs, and file cabinets.
f. The treatment of expenses that exceed the gross income from the business.

Answer 1

a. The exclusive use requirement means that office space is used solely for business purpose.

b. Indirect expense are related to business operating costs and distinction must be made wile deductions between business and personal use. Direct expense is solely related to the business and is deducted in full.

c. Employee deductions are allowed and they are deducted from Adjusted Gross Income.

d. The ownership status of resident is criteria for deductions. Resident status is allowed for deducting depreciation.

e. Office furnishing are deductible expense.

f. Any excesses are carried to the next yearly period.

Step-by-step explanation:

The deductions are required to be distinct between personal and professional use. It is responsibility of the business owner to calculate deductible expenses and then prepare tax status. The income from business are recorded at full and is subject to tax.