Thursday, January 17, 2013


Here is something that is new for 2013 returns - “Helping Small Business Owners and Home-Based Employees Claim the Home Office Tax Deduction”, explained by Deputy Secretary Neal S. Wolin and SBA Administrator Karen G. Mills. 

The new option allows qualified taxpayers to deduct annually $5 per square foot of home office space on up to 300 square feet, for as much as $1,500 in deductions.  To take advantage of the new option, taxpayers will complete a much simpler version of the current 43-line form.

The new option for the home office deduction will be available starting with the Tax Year 2013 return, which most taxpayers file early in 2014.

Current restrictions on claiming the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit on the amount of the deduction tied to income derived from the particular business, still apply under the new option.”

Be aware that this option is NOT available for 2012 returns.

I commented on this when the idea was first proposed by National Taxpayer Advocate Nina Olsen a few years ago in my post “A Home Office Standard Deduction”.

My thoughts on this new option are along the same lines as those of Russ Fox, as outlined in his TAXABLE TALK post “Is A Simplified Home Office Deduction Better?” –

I looked at all of my clients who filed this form, and the simplified procedure would have cost every one of them money. Perhaps that’s because of my client base, but I don’t think so. Most taxpayers taking the home office deduction do keep good records, so the recordkeeping isn’t that big of a deal. After all, these are small business owners who have to keep good records anyway (or are supposed to). The reality is that $5 per square foot understates the cost of most home offices, especially when factoring in depreciation.

Simple in this case does not necessarily mean better.

As this is an option, taxpayers who qualify for a home office deduction in 2013 should calculate the deduction using both actual expenses and the optional method and choose the option that provides the bigger deduction.

One question – how will using the standard deduction option affect the Schedule A deduction for real estate taxes and mortgage interest (since these items are a component of the home office deduction)?


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