If you wanted to take the home office deduction on your taxes in years past, you’d need a measuring tape, calculator, and then a year’s worth of bills for all your home expenses. With the 2013 tax return, the IRS has introduced a new “no-doc” simplified version of the home office deduction.
According to the IRS, this simplified option will save small businesses 1.6 million hours annually by reducing paperwork and recordkeeping. But just because the new option is easier, does it mean it’s better? Here, we’ll break down the two methods for calculating the home office deduction so you can decide what works for you.
Introducing the simplified method
With the traditional method, you add up your year’s expenses: mortgage/rent, insurance, real estate taxes, and utilities. Then you multiply that figure by the percentage of your house that’s dedicated as the home office. With this method, you also need to fill out a 43-line form (Form 8829).
If you want to use the new simplified method, all you have to do is measure your home office and then multiply the square footage by $5. That’s your deduction. Keep in mind that your home office space needs to be used exclusively and regularly for your home-based business. And, your deduction with the simplified option caps out at $1,500.
You can think of the new home office option like taking the standard mileage rate for your business car deduction. With the standard mileage, you just add up the number of miles driven for business purposes and multiply it by the IRS’ standard rate for the year. Alternatively, you could choose to add up all your actual expenses (like maintenance, gas, car insurance, etc.) – which is obviously a much more cumbersome and receipt-intensive process.
Source: Mashable.com | NELLIE AKALP