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Thanks skyport, Summary of new IRS rule of home office deduction

(2013-02-04 13:37:30) 下一个


-simplified cap, $5 per sf, up $1500;


-itemized deduction is still valid, in case that the biz owner has large utility bill.


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Claiming the intimidating home-office deduction — long considered a red-flag for audits — is about to get easier.


The Internal Revenue Service announced Tuesday it’s introducing a simplified option for claiming the deduction, which owners of home-based businesses and some other home-based workers use to write off the expense of using part of their residence for work. Experts say the tax break is often passed up by many qualifying taxpayers, because the calculations required to apply for it are so complicated.


Under the new rules, which reduce the paperwork and calculations needed to file the deduction, business owners will be able to claim $5 for every square foot of home-office space, up to 300 square feet, for a maximum deduction of $1,500. Under the current more complicated method, taxpayers have to file Form 8829, (www.irs.gov) a 43-line form that involves often complex calculations on utility bills, real estate taxes and property depreciation. The traditional method is more onerous, but isn’t capped at a certain dollar amount. The new option will be available for 2013 tax returns (the ones people will be preparing in 2014) and will require a much simpler form, the IRS says.


The change is a big win for small-business owners with home-based offices who often avoided filing for the deduction out of fear that an error on the form would trigger an audit, says Kristie Arslan, president and CEO of the National Association for the Self-Employed, one of several groups pushing for a simplified alternative. The IRS doesn’t say what type of information leads to audits, but “so many people make mistakes,” says Arslan. “That’s why they have shied away.”






Some business owners will save more by sticking with the original form, which is not subject to the $1,500 cap. That will especially be the case for people with large offices or high utility bills, says Arslan. “But you have to spend the time and go through the calculations,” she says.


Nearly 3.4 million taxpayers claimed the home-office deduction in 2010, according to the most recent data available from the IRS. The simplified option could increase those numbers significantly. A 2008 survey by the National Association for the Self-Employed found that nearly 60% of the business owners who used a home office did not file for the deduction.


The simplified form is also expected to save small businesses roughly 1.6 million hours a year that would normally be spent fulfilling the paperwork and recordkeeping requirements of the traditional filing method, the IRS estimates.


But taxpayers should keep in mind that the basic rules for the deduction still apply, says Abe Schneier, senior technical manager on the tax staff for the American Institute of Certified Public Accountants. The space must be used exclusively and regularly for business. And business owners should keep logs when possible of client visits or other documents that can prove how the space is being used. “You don’t want to have a rollaway couch or a foosball table in the room so it looks more like a den,” says Schneier. “It should clearly be an office space.”


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