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Posts Tagged ‘home office deduction’

2013 Home Office Deduction Easier To Calculate

Posted by William Byrnes on April 5, 2014


In Tax Tip 2014-36, the IRS alerted taxpayers about the new, simple calculation for the Home Office deduction.

If a taxpayer works from home, then it may be possible for the taxpayer to claim the home office deduction.  However, in years past this home office deduction has been rather complicated to calculate.

Starting this year (and applying to the 2013 tax return die in just 10 days), the IRS has provided a simpler option to calculate the deduction for business use of your home. The new option will save taxpayers time because it simplifies how to calculate and claim the deduction.  It also makes it easier for a taxpayer to keep records.  However, this new option for simplified method of calculation does NOT change the rules for who may claim the home office deduction.

6 tax facts about the home office deduction

1. Generally, in order to claim a deduction for a home office, a taxpayer must use a part of your home exclusively and regularly for business purposes. Also, the part of your home used for business must be:

  • the principal place of business, or
  • a place where the taxpayer meets clients or customers in the normal course of business, or
  • a separate structure not attached to the home. Examples might include a studio, garage or barn.

What clearly does NOT qualify for a home office deduction?  By example, a taxpayer sets up a computer in her bedroom on a dresser that she uses for personal emails and for keeping her business records.  In the dresser drawers are pens, paperclips, some receipts, as well as hair clips and some pieces of jewelry.  The IRS isn’t going to allow a home office deduction based on that computer on that dresser.

2. If a taxpayer uses the actual expense method, the home office deduction includes certain costs that the taxpayer paid for your home. For example, if the taxpayer rents a home, part of the rent paid could qualify for the home office deduction.  If the taxpayer own a home, part of the mortgage interest, taxes and utilities paid could correspondingly qualify. The amount of the deduction usually depends on the percentage of the home used for business.

3. Beginning with 2013 tax returns, the taxpayer may be able to use the simplified option to claim the home office deduction instead of claiming actual expenses. Under this method, the taxpayer multiplies the allowable square footage of the office area by a prescribed rate of $5.  The maximum footage allowed by the IRS is 300 square feet. The deduction maximum limit using this method is thus $1,500 per year.

4. If the taxpayer’s gross income from the business use of your home is less than the expenses, the deduction for some expenses may be limited.

5. If the taxpayer is self-employed and chooses the actual expense method, then the taxpayer should use Form 8829, Expenses for Business Use of Your Home, to calculate the amount of the home office deduction.  The taxpayer claims the deduction on Schedule C, Profit or Loss From Business, whether using the simplified or actual expense method.

6. If the taxpayer is an employee, then additional rules apply to claim the deduction. For example, in addition to the above tests, the business use must also be for the employer’s convenience.  By example: a “work from home” arrangement.

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Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

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Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

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Simplified Option for Claiming Home Office Deduction Now Available – May Deduct up to $1,500!

Posted by William Byrnes on March 29, 2014


2014_tf_on_individuals_small_businesses-m_1The IRS reported in Newswire (IR-2014-24) that people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.  The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record keeping burden on small businesses by an estimated 1.6 million hours annually.

The new option is available starting with the 2013 return taxpayers are filing now.  Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return.  Self-employed individuals claim the home office deduction on Schedule C Line 30, farmers claim it on Schedule F  Line 32 and eligible employees claim it on Schedule A Line 21.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.  Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

IRS YouTube Video:
Simplified Home Office Deduction: English / Spanish / ASL

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