Working from home can eliminate some of the stress associated with the traditional workplace but it can also lead to big headaches at tax time. While the IRS allows taxpayers to claim a deduction for expenses related to maintaining a home office, figuring out just how much you can write off can be complicated to say the least. In an effort to make claiming the deduction easier, the IRS is introducing new home office deduction rules for 2013
How the Simplified Home Office Deduction Works
According to the guidelines set out in Rev. Proc 2013-13
, calculating the amount of your home office deduction is a matter of simple multiplication. All taxpayers have to do is multiply the amount of space their home office occupies by $5 per square foot to figure out their deduction. Known as the “safe harbor” method, this simplified calculation is intended to streamline the tax filing process for home-based workers. As of 2013, the deduction is capped at $1,500 per year or up to 300 feet for each qualified home office space.
Guidelines for Using the Safe Harbor Method
While the new rule makes it easier to determine the amount of your home office deduction, there are some considerations you need to keep in mind. First and foremost, your home office must meet the definition established under IRS Code 280A
. According to these guidelines, a home office must meet the following requirements:
- It must be the primary place where you conduct trade or business.
- It may or may not be attached to your residence. For example, you may be eligible for the deduction if you have a separate building on your property that you use for business purposes.
- It must be used to meet clients, customers or patients during normal business hours.
While claiming the simplified home office deduction cuts down on the amount of paperwork you’ll need to file, it doesn’t eliminate the need for accurate records. The IRS advises taxpayers who are thinking of using the simplified method to document their business and home office expenses to ensure that they can justify the deduction.
Pros and Cons of Using the Simplified Deduction Rules
There are several advantages to using the safe harbor method versus the regular method. Under the conventional home office deduction guidelines, taxpayers are required to distinguish between personal and business expenses. Using the simplified method, you can list expenses like mortgage interest, casualty losses and real estate taxes as itemized deductions on Form 1040 Schedule A
. Since the safe harbor method is optional, you can elect to alternate between it and the regular accounting method on a year to year basis, which may be beneficial if your expenses fluctuate. If you and your spouse both maintain a home office, you can each use the simplified deduction as long as you have your own distinct space.
In terms of the drawbacks, using the simplified deduction means you can’t deduct any depreciation of the space you use as a home office. If depreciation is the largest expense you’re deducting then the regular method might be the better option. If you own more than one home, you can only use the simplified method for one home office space. You also can’t claim use the safe harbor method if your office is located in a home that you generates rental income. Finally, the simplified deduction doesn’t apply to taxpayers who are reimbursed by their employer for home office-related expenses.
Should You Take the Simplified Home Office Deduction?
Overall, the simplified accounting method could save you time and energy when you’re ready to file your taxes. According to the IRS, the new guidelines are expected to save small business owners 1.6 million hours each year in terms of recordkeeping and paperwork. Whether or not the safe harbor deduction is right for you depends on a number of factors and using the wrong calculation method could end up costing you in the long run. If you’re not sure which way to go, consulting a qualified tax professional can ensure that you get the maximum deduction possible.