IRS offering simplified home office deduction for 3.4 million taxpayers

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Beginning with the 2013 tax return, taxpayers with a home-based business taking the home office deduction will get a simplified option to figure the deduction.

The Internal Revenue Service recently announced, instead of completing the complex 43-line Form 8829, taxpayers claiming the home-based deduction will have the option of a maximum $1,500 per year deduction based on $5 a square foot for up to 300 square feet.

The change will reduce the paperwork and record keeping burden on small businesses by an estimated 1.6 million hours annually. Some 3.4 million taxpayers claimed deductions for business use of a home in 2010. That’s the most recent year the IRS counted the often-called “1099ers,” because they report income with the IRS-1099 Form.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller.

“The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

Work-at-home taxpayers using the new option cannot depreciate the portion of their home used in a trade or business, but they can claim allowable mortgage interest, real estate taxes and and casualty losses on the home as itemized deductions on Schedule A.

These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Those claiming the home office deduction still must prove that home office space is used regularly and exclusively for business.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014.

Contact your tax professional now to plan ahead about how to take your home office deduction for this year’s income tax return, filed in 2014.

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