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Jan
19

Big Changes to Office in Home Deduction

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Woman working in home office

IRS Changes Office In Home Deduction

Do you own a home based business? Do you own a small business and use a room in your home as an office away from the office? Do you work for a company that requires you to keep an office in your home, too?

If you use part of your home as an office for your business, it just got easier to claim the Home Office Deduction!

Beginning January 1, 2013, instead of keeping track of the percentages of square feet and stacks of a dozen different expenses in order to calculate the Home Office Deduction, you can now claim a flat rate. Read on – this may save you some time and record keeping this year.

The IRS will now allow you to claim an “optional” deduction instead of the usual “regular” percentage based deduction for business use of your home. This simplified, “optional” deduction is calculated at a flat $5.00 per square foot, up to 300 feet, with a $1500.00 cap for the year.

Example:

  • If your home office is 100 square feet, your Home Office Deduction would be $500 (100 x 5 = 500)
  • If your home office is 250 square feet, he or deduction would be $1250 (250 x 5 = 1250)
  • Simply take the square footage of your home office, multiply it by $5 per square foot and you have your deduction amount.
  • If your home office is 400 square feet and you elect to take the optional method, your deduction will be capped at 300 feet and $1500.

According to the IRS, tax payers spend 1.6 million hours a year on record keeping and paperwork for the Office in Home Deduction. By using a flat rate based on space used, people will save a lot of time and effort.

Claim Mortgage Interest & Real Estate Taxes on Schedule A

You can still claim home real estate taxes, allowable home mortgage interest, and casualty losses for the filing year as itemized deductions on Schedule A. No longer will these expenses be allocated between personal and business use if using the optional method. Depreciation on your home cannot be taken when using the optional method.

Business expenses not related to your home are still deducted as regular business expenses, no change there. These include employee wages, office supplies, stamps, advertising, office equipment, etc. You will continue to claim regular business expenses on Schedule C or the appropriate business form.

Qualified Business Use Is Still the Rule

The old requirement that the home office space must be used regularly and exclusively for only business still applies when using the optional method. Qualified business use is still the rule!

The rule that limits the office in home deduction to income earned by the business is also still in effect.

Year By Year Determination

The good news is, the IRS will allow you a year–by–year determination with this deduction. If you decide to use the optional method for filing year 2013, you can still change and go back to claiming actual expenses for 2014. If you want to flip back to the optional method in 2015, you can do that. Be aware that once you file that original tax return for the year that you claim either the optional or regular method you cannot go back and change that election. An election for any taxable year, once made, is irrevocable.

Need More Info?

You can find out more about the new optional method HERE

Do you qualify to claim the Home Office Deduction? Find out HERE

Contact the IRS

The IRS welcomes comments about the new law. You can contact the IRS if you’d like to tell them what you think:

E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.

Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

 

 

 

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A few months ago, my close friend Georgene sent me a link to a blog post and told me the story of how the young site owner had quit her job to blog full time – and was making a LOT of money doing it. Being a writer myself, I was instantly hooked by the story and went to take a look. I left the corporate work force a few years ago to write full time. Fast forward almost two years, and I find myself all over the place instead of on the New York Times Best Seller List, and not nearly as successful as I had planned on being – too many ideas, not enough time in my days.

I took a look at Crystal’s blog “Budgeting In The Fun Stuff” and told myself that I had planned for over two years to get a blog out there on taxes, money, and all things related. If a young woman could do it and make enough money to build a new house, I should be able to do it, too – after all, I didn’t need a new house, I only needed a new car! I moved my “money/taxes site” up a few slots on my business to-do list, resolving to get on the ball and get the blog out there. Sometime tomorrow. Or maybe the next day. Sometime soon.

A few weeks ago, a headline on Crystal’s blog happened to catch my eye:  “How I Make Money eBook is FINALLY LAUNCHED!!!” Since I also write eBooks and I’ve been the eBook launch coordinator for an award winning writer and Grammy winning song writer, I read with interest Crystal’s ebook sales page.

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Send me an email or drop a comment and tell me what you’d like to see and hear. Do you have any questions about your taxes? Do you own a small business and don’t understand what is expected of you as an employer? Looking for an accountant or tax professional and need to know what to look for? Let me know, and I’ll be glad to help!

Check back often, as I’ll be posting updates as I follow in Crystal’s footsteps, and I’ll be keeping track publicly of my blog’s stats, traffic, income, and more! Can I do the same thing Crystal did, and make six figures from this blog in a year? Will I be posting this time next year from a private beach? Tune in and find out! Sand checks will be coming regularly!

 

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