Changes to Home Office Deductions

by / Monday, 24 March 2014 / Published in Arizona Accounting Small Business Tips

If you’re like 59% of business owners, you’re running an established business from your home. Many of you have employees and have been in business more than three and a half years. That’s according to a study conducted in 2012 of more than 6,000 American business owners. How you claim your home office on your taxes is an important part of your business. The IRS recently made changes to home office deductions that we wanted to share.

Let’s start with what has not changed. The requirements for who can claim the deduction has not changed. You must either:

  • Use your home office regularly and exclusively for the business for which you are using the deduction. In other words, a room of your home is dedicated to the business.

  • Use the home as the principal place of business. You may conduct business outside the home but meet the requirements to claim a portion of the home for business.

What has changed is how the deduction is calculated. The IRS calls it a Simplified Option for Home Office Deduction.

  • You may elect to take a simple $5 per square foot up to 300 square feet or $1500 deduction for your home based business rather than filling out the 43 line Form 8829.

  • Home owners using the simplified form can claim allowable mortgage interest, real estate taxes and more as part of a Schedule A. There is no longer a need to delineate between personal and business use under this method.

  • Expenses such as advertising, office supplies and wages paid to employees are still deductible.

For more information about the Simplified Option for Home Office Deductions and all accounting related questions, please schedule a complimentary initial consultation.

 

Sources:

Starting a Business at Home

Home Office Deduction (IRS)

Simplified Option for Home Office Deduction (IRS)

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