Home Office (Photo credit: Wikipedia)
Home Office Tax Deduction Simplified
3.4 million taxpayers claim a home office tax deduction each year. In this last year for which complete figures are available 60 percent of those who qualified for a home office tax deduction did not take it. 3.4 million taxpayers did take it. This deduction is widely known as a red flag for an audit. The required 43 line IRS form 8829 is intimidating. It demands careful record keeping and complex calculations. More than half of all Americans work for or own small businesses. 52 percent of these businesses are home based.
Great If You Hate Paperwork Details
Taxpayers now have the option of deducting up to 300 square feet at $5.00 per square feet up to a cap of $1500.00 if they want to settle for a simple option. No more calculating energy costs, mortgage interest, homeowner’s insurance, property taxes, repairs as a percentage of the entire home if you opt for this. Since it’s hard to imagine a 300 square foot “real” office for under $4,000.00 a year this is hardly a generous change.
Elementary considerations still apply. The space must be used exclusively and regularly for work. Skip the pool or ping pong table and keep careful logs of client visits. Home Office Tax Deduction Simplified does not equal a free pass or excuse characterizing recreational space as office space haphazardly.
The Old Way May Still be Better for Some
Those with larger home offices and higher energy bills will undoubtedly choose to continue to do it the old way. Especially if they are in that enviable class of people who are so meticulous with their paperwork that they don’t mind a friendly visit from an IRS agent occasionally. For them the IRS form is worth plodding through. If you are close to the cap anyway you probably won’t want to bother wasting time with the added burden of the longer form. Home owner tax deduction simplified was meant just for you.
But will home offices under the cap be safe from the added IRS scrutiny? The IRS is tight lipped about details that go into audits for Home Owner Tax deduction simplified. It usually is not just one thing that triggers an audit. The implication seems to be that with less opportunity for abuse from “creative” book keeping the IRS will have less interest in it.
For all the tax “wonks” and accounting “geeks” that are slathering at the bit and about to write me, I know the law is silent on the more sophisticated tax questions that must arise. If you take the capped deduction will you still have to pay income tax on the full amount deducted when you sell? Is there a Recapture tax? What about depreciation? There is nothing specific in the new law about these things. Creative lawyers and accountants will raise these questions and they’ll be settled as the law is implemented on a case by case basis. Home Office Tax Deduction Simplified has been here since 2013.
