Posts Tagged ‘Home Office’

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2013 Home Office Deduction Features Simpler Option

Wednesday, March 19th, 2014

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

2013 Home Office Deduction Features Simpler Option

 

If you work from home, you should learn the rules for how to claim the home office deduction. Starting this year, there is a simpler option to figure the deduction for business use of your home. The new option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. It does not change the rules for who may claim the deduction.

Here are six facts from the IRS about the home office deduction.

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

•  your principal place of business, or

•  a place where you meet clients or customers in the normal course of business, or

•  a separate structure not attached to your home. Examples might include a studio, garage or barn.

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

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

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

5.   If you are self-employed and choose the actual expense method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You claim your deduction on Schedule C, Profit or Loss From Business, if you use either the simplified or actual expense method. See the Schedule C instructions for how to report your deduction.

6.   If you are an employee, you must meet additional rules to claim the deduction. For example, in addition to the above tests, your business use must also be for your employer’s convenience.

For more on this topic, see Publication 587, Business Use of Your Home. It’s available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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Are Your Home Office Expenses A Tax Deduction?

Wednesday, March 16th, 2011

Note:  A related discussion on this topic appeared on January 12, 2011 under the topic “Are You Planning To Start A New Business?”  The contents of this article are not intended to duplicate the information which was previously provided.  There is additional, new information provided below. 

From an “Overview” perspective, If qualified, making a decision regarding whether to claim the expenses for the use of your home for your business operations is a continuing issue and a problem for both American taxpayers and the Internal Revenue Service.  As you may have already concluded, there are far too many instances of fraud and abuse by those taxpayers who are clearly not entitled to the deduction.  It is also a potential “red flag” area that could cause your tax return to be examined and audited.  In summation, if you meet the requirements and qualifications then claim the deduction.  Otherwise, you are paying too much in income taxes.  If you do not meet the requirements and qualifications, don’t even think about it! 

Prepare a letter or memorandum for your records that includes both the requirements and your rationale for meeting these requirements.  Include all of your supporting documents, i.e. a copy of your appraisal, HUD 1, etc.  Keep them in a safe place or save them on your hard drive.  These documents will be invaluable IF your tax returns are audited. Be sure to review the “Recordkeeping” requirements on page 18 of IRS Publication 587 (“Business Use of the Home”).

If you do meet the requirements, there are additional points which you should know, including:

  1. The simplest method to determine the relative percentage of your home that is devoted to your business office is to divide the total square footage of your office by the total square footage of your home, i.e. 200/2,400 = 8.3%;
  2. There will usually be both “direct” (i.e. a second telephone line, Internet connection, repairs to your office) and “indirect” (i.e. insurance, taxes, mortgage interest, utilities etc) expenses on your tax return (Form 8829).  “Indirect” expenses require the use of the percentage which was calculated in #1 above;
  3. “Depreciation” – only the cost of your home is included in the cost basis and not the land.  Read pages 10-11 (“Depreciating Your Home” ) in IRS Publication 587 for specific guidance and procedural steps;
  4. Additional information on this subject can be obtained from reading IRS Topic 509, “Business Use of the Home” which is available via this website link;  (more…)

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Home Business Use (Home Office) Deduction

Wednesday, March 17th, 2010

The real (actual) unemployment rate is as high as 15% in some areas of the United States.  Job opportunities are limited.  Many former employees have decided to start their own businesses rather than become an employee again.  They often operate their business from their home.  Anecdotally, Hewlett Packard began its operations in the founder’s garage.  If qualified, making a decision regarding whether to claim the expenses for the use of your home for your business operations is a continuing issue and problem for both American taxpayers and the Internal Revenue Service.  As you may have already concluded, there are far too many instances of fraud and abuse by those taxpayers who are clearly not entitled to the deduction.  It is also a potential “red flag” area that could cause your tax return to be examined and audited.   

There are several situations that may exist in one of three categories:  1)  Fully qualified (entitled), 2) Partially qualified (not meeting one or more of the requirements, and 3)  Not  qualified.  Then the major considerations (factors) become whether or not you are claiming the expenses on your tax return.   From a practitioner’s perspective we must ask our clients about their specific situation and assist the client in determining whether or not the deduction (expenses) should be claimed.  While the Internal Revenue Service does provide general guidelines (which are also provided in this article) these guidelines can not be expected to cover every possible situation.  IRS Publication 587 (“Business Use of Your Home”)  provides additional information and guidance and should also be carefully reviewed.

IRS Topc 509 (Business Use of The Home) is provided on the “Information Center” page of this website.  To review the information in this article now on the business use of the home, click on this link.

Recent guidance from the Internal Revenue Service is provided below from IRS Tax Tip 2010-53: (more…)

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