How do I figure a home office deduction?
This question is a good example of a new law or regulation that can actually make doing your taxes easier. In 2013, the IRS simplified the home office deduction. Prior to this, figuring your home office deduction required a mountain of paperwork and a lot of headaches. Your accountant should be able to fill you in on the simplified home office deduction and help you figure out if it is the best way for you to take this deduction.
Basically, for the simplified version, you still have to meet two requirements. First, you must use a portion of your house regularly and exclusively for business. For example, you can't set up a desk in the guest room and call it your office -- especially if you've got company sleeping in the bed next to you. Second, it must be your principal place of business.
If you meet these requirements, here's how to claim the deduction the easy way:
- Use a standard deduction of $5 per square foot of space used for business, up to a max of 300 square feet (91 meters).
- Claim allowable itemized deductions, such as mortgage interest, utilities or real estate taxes on Schedule A.
- Don't worry about the home depreciation deduction, it isn't allowed with the simplified option.
If your accountant believes you can get a larger deduction doing it the old fashioned way, you may want to consider that. The IRS still allows it [source: IRSSimplified].