2013: New Rule for the Home Business Tax Deduction

January 23, 2013 | By: TaxCure Staff

new way to calculate irs home office deductionOne of the biggest obstacles to claiming the home office tax deduction is Form 8829. This form has 43 lines and can get rather complicated – especially when you include property depreciation. Due to the complexity of the form, many of those with home offices have been reluctant to claim the home business tax deduction.

However, starting this year, in 2013, a new rule will be in place for the home business tax deduction, making it easier to figure. It’s important to keep in mind that this change takes place for tax year 2013, which means you won’t be able to claim the deduction under the new rules until you file your taxes next year, in 2014.

Home Office Space Tax Deduction

Those who work from home will have the option to deduct $5 for every square foot of space used as a home office. There is a cap on figuring deductions this way, though. You can only claim a deduction for up to $1,500 using this method.

If you have a large deduction using the old method, you will still have the option to file a Form 8829. You can choose which makes make the most sense for you and then plan accordingly. For those with small home offices, it likely makes more sense to use the new method. However, if you have a large home office, or if your utility bills are very high, the old way of figuring your home office tax deduction might work better.

Is that a Home Office?

The rules for what qualifies as a home office are still the same, though. Nothing has changed about that. If you want to take the deduction, you need to make sure that you are only using the space for business purposes.

The good news is that you can use the smallest of spaces for your home office tax deduction. If you work in a room that is used for storage, you can’t deduct the whole room, but you can deduct the area encompassed by your desk – provided that area is used exclusively for your business-related activities.

It’s also important to note that telecommuters should offset their home office tax deductions with any reimbursements received from employers. If your employer gives you money specifically to help you pay for your home office space, you can’t then claim that amount as a deduction.

What about an Audit?

In the past, there were rumors that the IRS looked extra carefully at tax returns claiming a home office tax deduction. Many home business owners were concerned that claiming the home office deduction would trigger an audit.

With the increase in home-based businesses and an increase in telecommuting, the IRS recognizes that there are more home offices. This new rule for determining the home office deduction seems to indicate that the government acknowledges the changing landscape, and is less inclined to consider a home office a red flag – especially if you use the new rule.

Going forward, determine which method of calculating your home office deduction is most likely to benefit you the most. The new rule gives you more options, and you should explore them.