You can take a home office deduction if you meet any one of the following requirements:
- Your home office is your principal place of business
- You regularly and exclusively use your home office for administrative or management activities for your business and you have no other fixed location where you perform such activities
- You meet clients or customers at your home
- You use a separate structure on your property exclusively for business purposes
- You store inventory or product samples at home, or
- You run a day care center at home
If you are an employee, in addition to meeting the above tests, the business use of your home must be for the convenience of your employer.
For 2013, if you meet the above qualification, besides claiming actual expenses by filing Form 8829, you can elect to claim a home office deduction under the new “simplified method.” The simplified method basically allows $5.00 per square foot up to 300 square feet for a maximum deduction of $1,500. If you use this method, you can still include the full amount of your mortgage interest and real estate taxes in your itemized deductions subject to AGI limitations. (The actual method usually requires an allocation of these expenses to the home office deduction with the residual to Schedule A). Also, under the simplified method you cannot claim depreciation expense on home office assets.
Other considerations in using the simplified method:
- You cannot use the simplified method for a rental use
- You cannot use a carryover from a prior year with the simplified method
- The deduction is still limited to the gross income of the business
- An election once made for the tax year is irrevocable
- You can choose whether to use the simplified method each taxable year and changing methods is not considered a change in the method of accounting
Which method should you choose? Unless record-keeping is an issue, you should choose the method that gives you the greatest deduction. Because of the differences in the two methods, you will want to have your tax return calculated both ways in order to insure the greater tax benefit.
Please contact our office and we can discuss how you can maximize your tax savings.