Simplified Home Office Deduction

As part of its efforts to simplify tax reporting, the IRS will offer a new simplified Home Office Deduction beginning with 2013 tax returns (the one you will file in April 2014).  To qualify for a home office deduction, a business owner must maintain an area of their home that is used “exclusively” for business and it must be the principal place of business.  Employees who have a home office must also use the space for the convenience of the employer and must not rent a portion of the home to the employer.  Many people do not realize that they do NOT need to have a separate room in their home to qualify for a home office deduction, just an area of the home that is devoted exclusively to home office use.  If you use your spare bedroom as an office, but your mom also sleeps there when she visits, then the space is not used “exclusively” for business.

With improvements in technology and the growing trend in working virtually, the Treasury Department estimates that as much as 52% of small business are now operated from a home office.  The new home office reporting is designed to make it easier for taxpayers who qualify to take a tax deduction for use of the office space in their home.  Currently you have to fill out a 43 line form, number 8829, to calculate the home office deduction.  Beginning with the 2013 tax return, you will have the option to use a much simpler form and you can deduct $5 per square foot of home office space for a tax deduction of not more than $1,500.

The existing requirements to qualify for a home office deduction still apply, but you no longer have to track your actual expenses and complete the entire 8829 form in order to benefit from the tax deduction.

Wray Rives is a Certified Public Accountant and Chartered Global Management Accountant. He is the owner of a public accounting firm in the Dallas-Fort Worth area and also president of the virtual accounting services company NeedaCFO.com. Wray has over 20 years experience in public accounting and industry working with market leading companies including Arthur Andersen & Co., Pappas Companies, Uncle Julio’s Restaurants, The Auto Wax Company and Illinois Tool Works.
Wray is a member of the American Institute of CPA’s and the Texas Society of CPA’s where he serves on the Professional Ethics Committee.
Wray is a regular columnist for the American Institute of CPA’s CPA Insider and for The Bottom Line at Outright.com. He is the author of The Pocket Guide to Sales Tax in the 50 US States and The Pocket Guide to Individual Income Tax in the 50 US States.

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