If you work at a home-based business, the Internal Revenue Service has some (potentially) good news: It’s going to offer a simpler option for taking a tax deduction for home offices.
Before you get excited, though, the new option won’t be available for your 2012 return. It takes effect this year, for 2013 returns that are generally filed in early 2014.
Still, the agency says that it expects the new optional deduction, to be capped at $1,500, to greatly reduce the paperwork and record-keeping burden on small businesses. In the 2010 tax year, nearly 3.4 million taxpayers claimed deductions for “business use of a home,” as the home office deduction is formally known.
In a statement, the acting I.R.S. commissioner, Steven T. Miller, said the “common sense” rule aims to provide taxpayers an easier way to calculate and claim the home office deduction.
Currently, claiming the deduction means filling out the 43-line Form 8829, which often involves complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the new optional deduction will complete a “significantly simplified” form, the I.R.S. says.
Homeowners using the new option cannot depreciate the portion of their home used in a trade or business. But they can claim allowable mortgage interest, real estate taxes and insurance losses on the home as itemized deductions on Schedule A. These deductions don’t have to be allocated between personal and business use, as is required under the regular method, the I.R.S. said.
Mary Kay Foss, a certified public accountant in Danville, Calif., said many of her firm’s clients will welcome the simpler form when it’s available. A quick way to see if using the simple form will make sense, she said, is to multiply the square footage of your home office by $5 a square foot — the formula for the new deduction option. (If your office is 300 square feet, then your deduction would be $1,500, the maximum allowed.) If the result is more than you claimed for your home office on your most recent tax return, you can probably save yourself some time and use the simpler form. If you have higher expenses, though, you may still want to slog through the more detailed form.
Keep in mind that restrictions on the home office deduction still apply, including the requirement that the office must be used “regularly and exclusively” for business. So if your home “office” is a laptop that shares space with your food processor on your kitchen counter, taking the deduction is probably a stretch.
Business expenses unrelated to the home, like advertising, supplies and wages paid to employees, are still fully deductible.
More details on the new option can be found in Revenue Procedure 2013-13. And if you want to comment on the new option, you can, until April 15 of this year. Send an e-mail to: Notice.Comments@irscounsel.treas.gov, and include “Rev. Proc. 2013-13” in the subject line.
Does the idea of a simpler home office deduction appeal to you?
Article source: http://bucks.blogs.nytimes.com/2013/01/17/a-simpler-form-for-home-office-deductions/?partner=rss&emc=rss
