Claiming the Home Office Deduction Now Easier
With the economy on the rebound, the home office market could potentially add nearly two million home-based businesses between 2011 and 2025, according to a survey by IDC, a market intelligence firm. If you use your home as your place of business, claiming a home office deduction has become significantly easier.
In the past, your only option to calculate the deduction was to use the actual expense method. Using this method, you can deduct a percentage of indirect home office expenses, including mortgage interest, property taxes, association fees, home insurance premiums, utilities (if you do not have a separate hookup), security system costs and depreciation (generally over a 39-year period). In addition you can deduct direct expenses, including business-only phone and fax lines, utilities (if you have a separate hookup), office supplies, painting, repairs and depreciation on office furniture. In the past, this could only be done by gathering up receipts and summarizing several applicable expenses.
Beginning with the 2013 tax return, you can claim your home office deduction using a simplified method. Under this method, all you do is multiply the square footage of your home office (up to a maximum of 300 square feet) by a fixed rate of $5 per square foot. You can claim up to $1,500 per year by coming up with one small piece of information, your business square footage. If you wish to claim a greater amount, however, you will need to use the actual expense method.
Bear in mind that, to qualify for the home office deduction, you generally must maintain a specific area in your home that you use regularly and exclusively in connection with your business or trade. In addition, you must use the area as your principal place of business or, if you also conduct business elsewhere, use the area to regularly conduct business, such as meeting clients and handling management and administrative functions.
For more information on the home office deduction, contact Dan Newman at email@example.com or call him at 312.670.7444.