The IRS has released its summertime tax tip bulletin: “Simplified Option for Home Office Deduction” that will be welcome news for those who work from home. According to the IRS, starting this year, they have made the option to figure the business use of your home much simpler to use and a time-saver because it requires less paperwork and record keeping. Important Note: the IRS clearly states that the simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and record keeping requirements.
The following are six facts about the new, simplified method of claiming the home office deduction the IRS wants taxpayers to know to avoid tax problems:
- The simplified method may be used when you file your 2013 tax return next year. Note: If you use this method to claim the home office deduction, you multiply the square footage of your home office by a prescribed rate instead of calculating your deduction based on actual expenses.
- The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet meaning the new method only allows for $1,500 per year.
- You may choose either the simplified method or the actual expense method for any tax year. Note: Once you use a method for a specific tax year, you cannot later change to the other method for that same year.
- If you use the simplified method and you own your home, you cannot depreciate your home office but can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. Deductions are claimed on Schedule A, Itemized Deductions.
- Costs such as advertising, supplies and wages paid to employees can still be fully deducted business expenses using the simplified method even though they are unrelated to the home.
- If you use more than one home with a qualified home office in the same year, the simplified method can only be used for one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.
For additional IRS information about ways to deduct your home office visit IRS.gov. It’s important that if you have any questions about home office deductions to consult with a qualified tax professional to make sure you are tax compliant and avoiding future IRS tax issues.
No one should give the IRS reason to further “examine” your tax returns and audit you. Yet because they mistakenly claim more than they are entitled, small businesses are particularly vulnerable to IRS queries. That’s why it’s important your records accurately reflect your legitimate business expenses.
If you have back tax issues, call the IRS problems solvers at Tax Resolution Services at (888) 699-7630 for a free, no-risk consultation. You have nothing to lose and may be surprised at what your options are.
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