The Internal Revenue Service has recently announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.
The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will not only reduce the amount of hours of paperwork the old method requires but will also alleviate the fear and complexity associated with the taking the home office deduction. The new method will encourage more taxpayers - who formerly did not take the deduction at all - to use the simpler method.
"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."
The new option provides an easier way to claim this deduction. Currently, taxpayers must fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
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.
It is of utmost importance to remember that the current restrictions on the home office deduction, such as the requirement that a home office must 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.
The new simplified option is not available for your 2012 return, only your 2013 return that will be filed in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after Jan. 1, 2013.
Please note that the new deduction is not right for everyone. If the $5 per square foot allocation is more than $1,500 limit and you have a significant amount of depreciation, the old method may be best for you.
If you have any questions about the new home office deduction or any other tax issue please contact us at 412-904-2693 or rgargani@globalatg.com.
"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."
The new option provides an easier way to claim this deduction. Currently, taxpayers must fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
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.
It is of utmost importance to remember that the current restrictions on the home office deduction, such as the requirement that a home office must 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.
The new simplified option is not available for your 2012 return, only your 2013 return that will be filed in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after Jan. 1, 2013.
Please note that the new deduction is not right for everyone. If the $5 per square foot allocation is more than $1,500 limit and you have a significant amount of depreciation, the old method may be best for you.
If you have any questions about the new home office deduction or any other tax issue please contact us at 412-904-2693 or rgargani@globalatg.com.
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