A New Option For Calculating the Home Office Deduction

If you work from home for business, the IRS has potentially provided you with some relief in the form of less paperwork required to claim the home office deduction. You may soon be able to claim the home office deduction based on a simple calculation.
The home office deduction
The rules for claiming a home office deduction will be staying the same. You still must regularly and exclusively use a portion of your home for your business to qualify (reference: IRS Publication 587). However, instead of claiming the deduction by completing the 43 line Form 8829, taxpayers may soon be able to complete a significantly simpler form. Specifically, the home office deduction is calculated at $5 per square foot. There’s a catch though. Taxpayers will only be able to use this simple option if their home expenses do not exceed $1,500 or 300 square feet. In addition, the new option won’t be available until the 2013 tax year, which you’ll be filing in the beginning of 2014.
What about depreciation, mortgage interest, real estate taxes and other expenses?
You still will be able to claim these expenses as an itemized deduction on Schedule A of your form 1040. In addition, these deductions do not need to be allocated between personal and business use, as is the case with the regular method.  However, you won’t be able to claim any depreciation expense as an itemized deduction, which is allowed under the regular method.
What should I do for my 2013 tax return?
If you run a home-based business, then you need to assess whether the $5 per square foot calculation will be more or less than the $1,500 limit. If it’s below the limit and you don’t have significant depreciation expenses, then it may make a lot of sense to use the new simple form. If the amount is well over $1,500 and/or you have large depreciation expenses, then going through the old Form 8829 will probably be your best option.
What’s the best method for our business
You should work on a mixture of the above, but start with online advertising as that’s easiest method to generate leads quickly. You’ll need to be mindful of your daily spend, but leads should come through that channel.

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