Have a home office? The IRS may offer a streamlined deduction for it.
If you’re working on your 2012 tax return, you probably aren’t in the mood to consider changes that await you next year.
Nonetheless, the Internal Revenue Service wants to hear from you now about something it’s going to implement this year that could affect the return you file in 2014.
The agency recently announced a streamlined option for claiming a home office deduction. You have a chance to comment on this new option, and your suggestions could help improve the change for tax year 2014 and later, the IRS says. The deadline for comment is, yes, April 15.
The IRS says that almost 3.4 million taxpayers claimed deductions for business use of a home in 2010, the most recent year for which data are available. But many people eligible for the deduction might not be doing so because it’s too complicated to work out, according to the National Association for the Self-Employed.
A study by the association found that 42 percent of the organization’s members who qualify for the deduction don’t take it.
“They don’t take the deduction because they fear if they take it and make a mistake, it will trigger an IRS audit,” said Kristie Arslan, president and chief executive of the association.
Currently, if you qualify for the home office deduction, you have to fill out a 43-line form that requires calculations of allocated expenses, depreciation and carryovers of unused deductions. Makes my head hurt just to think of it.
Sixty percent of the association’s members said that if there were an option to take a standard home office deduction rather than itemizing, they would take it.
Under the new option, taxpayers can fill out a simpler form, but the deduction is capped at $1,500 per year, based on $5 per square foot for as much as 300 square feet.
The home office deduction is available for homeowners and renters. Arslan said that if the space you dedicate qualifies, all of the costs associated with maintaining that part of your home — mortgage interest, insurance, utilities, repairs and depreciation — would be deductible. What’s not changing is the requirement that a home office must be used regularly and exclusively for business. And the key here is “regular and exclusive.”
It’s the exclusive part that can get folks in trouble. You have to dedicate a specific area of your home to conduct your business or trade or to meet with clients or customers. You do not meet the requirements of exclusive business use if the area of your home is also used for personal purposes.
Here’s an example from the IRS. Let’s say you’re an attorney who uses the den or family room to write legal briefs or prepare other documents for clients. The family also uses the room to play games or watch television. The room is therefore not exclusively used for business, so you can’t claim the deduction.
To find out what qualifies as a deductible business expense, go to www.irs.gov. Then search for “Deducting Business Expenses” and scroll down to the section on “Business Use of Your Home.” The deduction can be limited based on the income of your business or if your business is losing money. All this makes my head hurt even more. Thankfully, there’s a short video on YouTube that also explains how to qualify for the deduction. Search for “home office deduction.”
I have a personal interest in this change because I have a dedicated space in my home for business work, and I qualify for the deduction.
If you want to comment on the simplified home deduction option, you can e-mail firstname.lastname@example.org. Put “Revenue Procedure 2013-13” in the subject line. Or you can mail your comments to the Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.
After reviewing historical home office deduction information, the IRS came up with the $1,500 figure, believing it would offer small businesses a practical alternative to the current, more complex calculation, a spokesman said.
Arslan of the National Association for the Self-Employed said the group has endorsed the $1,500 as a trade-off for a less cumbersome process.
“I think a lot of business owners would consider the standard deduction, considering what they would save in time or the money they would spend to hire someone to help them get the deduction,” she said. Makes sense to me.
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