Claiming Home Office Deduction Just Got Easier

Tax Professionals' Resource
March 12, 2013 — 1,208 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

People who meet certain requirements will find that home office deduction is a great way to save tax, but the whole process of doing so can be quite complicated, which makes a large percentage of people not even trying this tax-saving method. The IRS recently has come up with simple ways of claiming this deduction.

Are you Eligible?

To utilize this simplified method, you will have to meet the qualifications of the home office deduction. These requirements are quite stringent and will be put up against various standards. Three main conditions for claiming this deduction are as follows:

To deduct these expenses, the owner of a business must pass tests related to the space, the purpose of use – regular and exclusive use, and primary place of meeting customers or businesses.

Regular use: Making use of the space for business once in a while will not meet the test requirements.

Exclusive use: Your home office should be used only for business, although some exceptions are made for inventory storage and day care uses, but other than those two, if the smallest non-business use occurs, it could lead to you losing your right to the tax deduction.

Business use: This space should be the main location for business on a regular basis. It does not necessarily have to be the only place of business. It could be the sole place for business if there is no other place where substantial management or administrative activities related to your business occur.

The Simplified Method

Claiming for home office tax deduction is not a simple process, especially when it boils down to computing it. In order to arrive at the deduction amount, you need to multiply the prescribed rate into the allowable square footage of the home office.

The allowable square footage is anything less than 300 square feet or the square footage of your home office. For 2013, the prescribed rate is $5 per square foot and this amount will be updated as and when the IRS feels the need.

Using this technique, the greatest deduction you can claim is $1,500. On the other hand, you cannot claim an amount that is greater than your business’ gross income. Your business gross income is accredited to the utilization of your home for dealings, after using other business deductions that are not related to your home’s usage, like the supplies and equipment of a business.

Also, any amount deduction that is not allowed because of the limitation of this income gets lost and cannot, in any manner, be pushed to another tax year. You can choose to use this simplified method when you are filing your tax returns. It is important to keep in mind, that once you make this choice, you cannot use any other method for that particular tax year. On a yearly basis, you can choose whichever method you would like to use.

Although the simplified method is a great option, it may not be suited for everyone, so take a look at your business needs before deciding to use the simplified method.

Tax Professionals' Resource