The
SBA estimates that there are 14 million home-based businesses, but only 3.4
million of these home-based businesses claimed the home office deduction in
2010. Keith Hall, the national tax advisor
for the National Association for the Self-Employed, said that the main reasons
for not taking the deduction were the complexity of Form 8828 (Business Use of
Your Home) and fear of an IRS audit. For
years, many tax advisors correctly advised their clients that there is an
increased chance of being audited if they claim the home office deduction.
Starting
in 2013 (returns due April 15, 2014) taxpayers can elect to use a simpler
standard deduction of $5 per square foot, with a maximum of 300 square feet.
This will result in a maximum $1,500 home office deduction. Using this simplified method eliminates the
capital gains tax on the profit from selling your home. Additionally, the use of the simplified
method allows the taxpayer to deduct home interest and property taxes in full
on the Schedule A – Itemized Deduction Form.
The old method required you to subtract the portion of these expenses
claimed as a home office deduction before deducting the rest on Schedule A3.
You
may still use the old method if you use more than 300 square feet of your home
in your business, and it would result in a higher deduction.
Be
warned—the IRS still requires that the home office be used exclusively for
business purposes. If you use the
kitchen table or the coffee table in your living room, you most likely will not
qualify for the deduction. You must be
prepared to show that you use all or a portion of a room strictly for
business. I recommend taking pictures of
the space being used in order to have proof to provide to the IRS.
Like
any good CPA, I need to add a disclaimer:
Unfortunately, it is impossible to offer comprehensive tax info over the
Internet, no matter how well-researched or written. And remember, I love my readers, but having
me bookmarked on your computer doesn’t make you a client: Before relying on any information given on
this site, contact a tax professional to discuss your particular situation.