Personal Finance: The New Home Office Deduction Method

With the inception of the Internet, home-based businesses have been growing at high margins and redefined what it means to have a home-based business and related deductions.…in recent years the process had become so cumbersome, many people who probably would have benefited, did not take the deduction.  Well, guess what, The IRS has announced a new alternative rule change that simplifies the calculation of the home office deduction for the 2013 tax year. Under the terms of Revenue Procedure 2013-13, which the IRS calls the “safe harbor” method, taxpayers are now able, as of January 1, 2013, to easily calculate their 2013 deduction for their home office; just multiply the square footage of the area of your home that you use strictly for business purposes by the prescribed rate ($5 per square foot) and Voila! You have your tax deduction….up to $1,500.

Three Rules for Claiming the new Simplified Option Home Office Deduction

Home-based entrepreneurs still need to meet standard IRS criteria to qualify for the home office deduction. According to the IRS Code 280A, home office usage is defined as:

  1. A home office is considered the taxpayer’s primary place in which he or she conducts trade or business.
  2. The home office may or not be attached to the taxpayer’s residence; it may be a separate structure on the property used exclusively as a home office.
  3. A home office is where the taxpayer will meet clients, customers or patients during the normal course of business.

To see if this “safe harbor” method is right for you,  see Revenue Procedure 2013-13 and always consult with your tax professional as to specific tax advice for your particular situation.

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