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As you know, having a home office and following the rules and regulations has the potential to substantially lower your taxes. The Internal Revenue Service has simplified the way you deduct your home office in 2013.
For those who take advantage of this new option, they will no longer need to figure-out matters like the percent of utilities used, improvements made to the space and calculating the portion of home mortgage interest you are allowed.
With this change, you can take what’s known as a standard deduction amount. Taxpayers with a home office can still continue to file their returns as they have in the past. The IRS is merely allowing individuals a new option.
The Changes Explained
Let’s take a moment to focus on the regulations as they apply to a home office. There are two terms to remember: “Regular use” and “exclusive use.”
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Exclusive use means that your home office is the only place where you conduct your business. For those with an office in another location, they may not be able to utilize taking a home office deduction. There are exceptions, though.
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For instance, if you have a remote, principal area where you work and regularly use your property to perform job-related tasks (like meeting with clients), you’re eligible. The key word here is regularly.
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Another example of how you can deduct your home office on your 2013 tax return is when you have a satellite structure that’s located inside your property line. It has to be used exclusively for business.
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Do you store some personal items in this other structure? The IRS notes you can’t deduct that area. That is unless the materials are work-related. Excluded from this rule are those who run a daycare facility. Additionally, this applies to using a portion of your house for keeping product or inventory.
Regular Use Rules
Regular use means exactly what it says. The taxpayer cannot take the deduction if they only occasionally use the space for work. Those who volunteer for a charity are not allowed by the government to deduct for a home office since they are unpaid for their service.
Occasionally we have more than a single business. Be forewarned: You can only take a deduction on one of the ventures.
Here’s an example: You have a home improvement business at another location. You’re not able to write that off even if you periodically draft-up plans, order materials and the like from home.
On the other hand, those who have a consulting business which is not part of your primary job — as long as you practice the majority of calls, client meetings, record-keeping and other business transactions — you are legally allowed to take the deduction.
The New Simplified Option
Calculating a home office tax deduction is fairly simple. Should you decide to take the new streamlined option, look at this formula:
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Measure the square footage of where you have your home office. The IRS gives you five-dollars in deductions for every square foot. The maximum amount allowed is $1500.
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Another plus with the simple method is that you can write-off your total mortgage interest using the Schedule A form.
Once again, for those taxpayers with a home office who are used to the old system, you will still need to complete a Schedule C with your returns. The takeaway is that home office deductions can be much easier when you file your taxes for 2013 by adopting this new option.
Please note, I am not a tax professional. You should confirm this information with your tax professional before taking action based on this information. The content of this article draws upon information provided in The Home Office Deduction – Much Simpler Than You Think.
If you have a home office but want to expand your business (and move the business out of your home), once source of capital is an SBA Loan. Check out this informative guide to SBA Loans.
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About Marc Prosser
Marc Prosser is the Publisher of Fit Small Business , a website that helps small and medium-size companies make better business decisions. One of his favorite articles is Free Business Cards: Where To Get Them and The Fine Print where he explores the business model behind this giveaway.
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