Raining Cats And Blogs: Good News About Taxes and Home Business

Good News About Taxes and Home Business

If you’re one of the millions of homeowners and renters who work or run a business from the place you live, here’s some good news on taxes: The Internal Revenue Service wants to make it easier for you to file for deductions on the business-related use of your home. Rather than the complicated 43-line form you now have to fill out to claim a write-off — the instructions alone take up four pages of text and involve computations ranging from depreciation to utility bill expense allocations — the IRS has come up with a much simpler option: what it calls a “safe harbor” method that allows you to measure the square footage of your business space and apply for a deduction. The move comes at a time when the use of homes for work is soaring, thanks to technologies such as high-speed Internet and Skype. Last October, the Census Bureau estimated that as of 2010, 13.4 million Americans were making some type of business use of their homes and that home businesses employed nearly 10 percent of all workers. During the same year, the IRS says 3.4 million taxpayers filed for the home office deduction. Kristie Arslan, president and chief executive of the National Association for the Self-Employed, says, that the IRS rules for home offices have been “cumbersome and time-consuming. They also worried that they could be exposed to an audit by the IRS if they made mistakes in filing.' The new IRS option, which will be available for 2013 and beyond, allows owners and employees who work from home to deduct $5 per square foot of home office space per year, up to a maximum allowable space of 300 square feet. The write-off is capped at $1,500 per year, but the hassle factor is negligible. Here’s how it works. The Internal Revenue Code permits you to deduct expenses for a home office that is used “exclusively” and on a “regular basis” as your principal place of business “for any trade or business,” or as a place to meet with clients or customers. Provided you qualify on these threshold tests, the code allows you to deduct home loan interest, property taxes, rent, utilities, hazard insurance and other expenses based on the percentage of the total space of the home that is attributable to your business use. Though this method can produce sizable deductions, critics have long argued that the computations for some of the allowable items — depreciation on the house you own is one — can be tricky and require significant record-keeping and time expenditures to get it exactly right. In addition, the IRS has acknowledged that the presence of a home office deduction on a taxpayer’s filing may increase that taxpayer’s potential for being selected for audit. The new streamlined approach essentially boils everything down to just one measurement: How much square footage that qualifies for business-purpose treatment are you using? Multiply that number by $5 per square foot and you’ve got your deduction amount. As long as this does not exceed $1,500, you can use the new short form write-off. If the total is more than $1,500, you can use the more complicated option. 

If you are looking to buy or sell a home in the  Anderson or Greenville SC real estate areas, visit our website at www.SheilaNewtonTeam.com for tons of great information.

 

   
Sheila Newton   
Sheila Newton Team 
Berkshire Hathaway HomeServices -
C. Dan Joyner, Realtors
864-225-1205 (direct)
864-940-6377 (mobile)

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Comments

Thanks Sheila for all of the information. I really do appreciate it. Royal...

Posted by Royal Goodman, "Goodie" (Royalty Homes USA ) over 5 years ago

Sheila

I'd say that's pretty good news for a lot of people for the 2013 tax period. 'Bout time.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude - Carlsbad (Solutions Real Estate ) over 5 years ago

This sounds like a much better way of determining the business use space Sheila.

Posted by Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366, General Contractor, Dry Rot and Water Damage (Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366) over 5 years ago

Thanks for the heads up

Posted by Ray Stockwell, Head of Product Marketing ZipperAgent (Zyprr, INC) over 5 years ago
Tax issues are always great shares. My concern has always been the fear that a home-office deduction is a 'red flag' for an audit.
Posted by Sandy Padula and Norm Padula, JD, GRI, Presence, Persistence & Perseverance (Realty National) over 5 years ago

Sheila -- this is a great new process, which should benefit quite a few people who work from their homes.  Two things people should be watching for on this: 1) does the amount adjust each year for inflation, and 2) did they talk to an accountant or tax specialist to clarify what would happen if they sell the home?

Posted by Steven Cook (No Longer Processing Mortgages.) over 5 years ago

Participate