Calculating Business Expenses When at Two Locations in a Tax Year

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business taxes with two locationsOne of the most common questions that we run across here at Let’s Do Taxes is “How do we deal with home-based business expenses when conducting business at two different locations in a tax year?“. Well, as you know, when operating a home-based business there are certain expenses you can deduct from the income you generate. You have Form 8829 and a worksheet to your disposition to calculate and accurately assign general expenses such as utilities to the portion of your home used for business purposes.

Last year I operated a business at two locations but not at the same time. My business operated continuously for the entire year but in August I moved into a new place. A situation like that means that I had to fill out Form 8829 with specific calculations of income and expenses for both places where I conducted business. Using tax preparation software (I used TurboTax for 2013 tax return) it is not as strenuous as one might think but I ran into an error when the software was checking for accuracy of the returns.

The software combined all the expenses (for both locations) that I previously indicated and transferred the total amount into Schedule C – Profit or Loss from Business. As the software was checking for accuracy of the tax return it found an error in Line 7 on the Worksheet that was empty. It displayed the following message “Allocable home office expenses must be entered”. I did not initially realize but I had to allocate appropriate amount of expenses for each home and their value has to equal the amount previously entered on Schedule C (also displayed on Worksheet 8829: Total Expenses from Schedule C – Line 6). For that reason I had to fill out a worksheet for each place and I had to split the total expenses between the two homes.

Here’s an example of what happened:

  • TurboTax walked through all types of business expenses that may apply to my business; I filled out the relevant fields for each of the places where I conducted business separately.
  • The software then copied the total expenses into Schedule C – Line 28.
  • It found an error on Worksheet 8829, while it transferred the total expenses from Schedule C into Line 6 it could not assign portion of those expenses for each house leaving Line 7 blank.
  • In order to move on and submit a correct tax return the amount of total expenses has to be split into two and entered into Line 7. I determined which portion of the total expenses are appropriate for each house and entered them in Line 7 of Worksheet 8829 for each house

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