If your daily commute involves walking downstairs to the coffeepot and not much farther, then you might qualify for the IRS Home Office Deduction. And beginning this year, you have two choices as to how to calculate it on your federal income tax return.
For the 2013 tax year, the IRS has introduced a simplified formula for calculating the home office deduction. The taxpayer takes the square footage of the office space, 300 feet or less, and multiplies it by $5 per square foot. The cap on calculating the deduction this way is $1,500.
The IRS says it introduced the simple square-footage option to reduce the record-keeping burden on small-business owners and the self-employed.
Owners still have the option of filing IRS Form 8829 and itemizing the actual expenses associated with your home office. Those expenses, things such as mortgage interest, insurance, utilities and repairs, are based on the percentage of the home that is actually used as the office.
Which method you use may depend on who calculates your tax liability.
We will continue to use the itemized form mostly for our clients, said Ben Micham, CPA and president of Micham and McSwain CPAs in Raleigh. But for the average person doing their own return, the simplified method will obviously be easier.
No matter which method you decide to use, make sure your home office space qualifies for a deduction. Here are the IRS guidelines:
Regular and exclusive: Any spaces that you call home can be eligible for the home office deduction. An office can also be a free-standing structure such as a detached garage or a barn.
What really matters to the IRS is that some part of your home is used regularly and exclusively for conducting business.
Perching at the kitchen island with a laptop doesnt mean the square footage of the kitchen counts toward the deduction because the kitchen isnt used exclusively for work. But other spaces, even very small ones, might.
It really doesnt matter where the office is, it is just supposed to be used regularly and exclusively as a home office, Micham said.
And what if the space is occasionally called on for some other use?
If it was a guest bedroom that would qualify, but you wouldnt want someone sleeping in there regularly, Micham said.
Principal place: To qualify for the home office deduction, your home office must be your principal place of doing business. You can conduct some business somewhere else outside your home, but the majority of what you do has to be at home.
Additionally, the IRS says the deduction is available if you work at home for the convenience of your employer, not just because it might be easier for you.
Its estimated that as many as 30 million Americans work from home at least one day a week. Not all of them will be eligible for the federal home office deduction, but if you spend a significant amount of time working where you live, its worth seeing if you pass the test.
Carla Turchetti is a small-business writer and journalist. Reach her at email@example.com.