Tax Tips for Small Business Taxpayers Winter 2020/2021

Posted on: 6 . 1 . 2021

Working from home?

Know what’s deductible

If you’re self-employed and use part of your home for business, you may be able to deduct expenses allocable to the business use. The home office deduction is available for homeowners and renters. To qualify for the deduction, you must use the space in your home regularly and exclusively as your principal place of business. Any personal use of the space will disqualify you from claiming a home office deduction.

You may choose one of two methods for calculating your deduction—the simplified method or the regular method. The simplified method allows you to claim $5 per square foot for a maximum of 300 square feet. This gives you a home office deduction of no more than $1,500. No other deductions are allowed. You are still permitted, however, to claim any mortgage interest or property taxes on Schedule A, if you itemize deductions.

The regular method requires a bit more recordkeeping. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the square footage of the business use compared to the square footage of your entire home. This percentage is then used to calculate the percentage of deductible expenses such as mortgage interest, insurance, utilities, repairs and depreciation.

You may choose to use either the simplified method or the regular method for any taxable year. Once you choose, you cannot change your mind for that year. You can, however, use the simplified method one year and the regular method in another. If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table.

During 2020, many employees were sheltering in place and forced to work from home. The current rules for deducting home office expenses do not apply to employees since deductions for employee business expenses have been suspended until 2026.


Tax season is over, but if you had to pay an under­payment penalty, you may be able to get a refund for some of it. Because of the confusion about the Tax Cuts and Jobs Act, the IRS expanded the waiver for tax penalties for underpayment for this year only. In other years, you could avoid a penalty by withholding at least 90% of the tax due. This year, the IRS lowered that number to 85% and then again to 80% as the tax season wore on. I can help you file Form 843, Claim for Refund and Request for Abatement.

Important Tax Dates and Information

Tax Notes

If you’re opening a business or administering an estate, you may need to obtain an Employer Identification Number (EIN) by completing Form SS-4 or applying online at

Applying for an EIN is a free service offered by the IRS. Beware of websites that charge for this service. If you have any questions about the process, please let me know.

Reach out today to discuss how we can help you grow your new or existing business. We consult with Startups, Freelancers, Retirees, and small and medium-sized businesses in Colorado and nationwide.