Tax Minute

Simplified Home Office Deduction

Almost invariably, when a new client that has a business operated out of their home comes in to our office they tell me that they don't take the home-office deduction because they were told they will be audited. This is simply not true. The more likely reason that a home-office was never taken by their prior accountant was because it was extremely cumbersome to gather and enter all of the data into tax software to take a relatively small deduction. The IRS was aware that taxpayers were foregoing the home office deduction because of this and changed the rules for tax years starting in 2013. Over the past five years of preparing tax returns I've come to the realization that you will still be better off in almost all circumstances using the traditional method of deducting a home-office, which is calculating the actual expenses associated with that office. However, many of my clients have decided to go with the simplified method anyway. This is done by simply multiplying the square footage of their home-office by five dollars with a maximum deduction of $1,500 per year and putting that figure on their tax return. If you have been operating a business out of your home and have not been taking the home-office deduction I suggest that, as a minimum, you start taking the simplified home office deduction on your returns moving forward.

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