One of our USTaxAid members asked this question regarding the home office deduction. If you have a question, look for the button on the home page of USTaxAid to submit questions.
“My husband and I have been filing two Schedule C’s for two different businesses that use the same home office, sharing the home office expenses between the two businesses. Business A has not been very successful the last few years so we have had home office expenses that we have not been able to use because they would have put that business at a loss. Can we apply the unused expenses from Business A to Business B since it is the same office space? We are phasing out Business A so 2014 is probably the last year will file for it and we don’t want to lose those expenses.”
Let’s go back to the home office deduction rules. In order to take a deduction, you must have a space with regular and exclusive use. You can now take a deduction a couple of different ways: (1) The business use percentage (business square feet divided total square feet) applied to housing costs such as rent or mortgage interest, property tax, insurance, utilities, etc or (2) The new simplified method of $5 per square foot, up to $1500 for the year. The difference is (1) allows you to roll over the loss to another year. The simplified method is take it or lose it.
In this case, I’m assuming you have one space that is undivided. It’s all just one room. Because there is no division, you can take the home office deduction against the profitable company. If you have two rooms and one each is for each business, that would mean that you have two separate home offices to allocate.
“Another option we were considering was merging the two businesses into one and then claiming the past home office expenses. (The businesses are closely related – electrical contracting and and electrical “how-to” website.)”
This would make a lot of sense. Now I have an answer for a question you didn’t ask. I really recommend you consider setting up an LLC that has elected S Corp status for your business. Without the structure, you have risk, extra taxes, increased audit exposure and you aren’t building credit.