The IRS has created a simplified method for calculating a tax deduction for taxpayers with home offices. This method gives the taxpayer a deduction of $5 per square foot used for the home office, capping the deduction at $1,500. Also, the deduction cannot exceed the profit from the business that is conducted in the home office. The home office must be exclusively used for business on a regular basis to qualify for this deduction.
In the past, there was only one way to receive the deduction for a home office. This method can still be used. To calculate the deduction, home expenses are multiplied by the square footage of the home office used exclusively for business in proportion to the homes entire square footage. Home expenses include utilities, depreciation, upkeep of the home, etc.
This simplified method saves both time and money for the taxpayer. Taxpayers no longer have to keep track of all home expenses during the year or pay additional fees to accountants for calculating the deduction.
A taxpayer can decide to elect the safe harbor each year or not as long as the election is made on an original return filed on time.
Although the simplified method is easier, the regular method is still allowed, and may be more advantageous for certain taxpayers. Contact your tax preparer to determine which method would benefit you the most.
As always, please contact your Anders tax professional with any additional questionsAll Insights