The Internal Revenue Service, on January 15, 2013, announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction). The IRS estimated that the new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record-keeping burden on small businesses by 1.6 million hours annually.

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829), often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form. Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. The new simplified option is available starting with the 2013 return most taxpayers file early in 2014.

For more information about the home office deduction, and more generally the amounts and types of deductions which might be available in your specific situation, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Further details on the new option to claim the home office deduction also can be found in Revenue Procedure 2013-13, posted on www.IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013. Please also feel free to share this article with others that might benefit from this information.