Years ago I was representing a screenwriter before an IRS audit. We did not prepare the
return but was defending our client’s home office deduction in a place that the client no longer lived, or had pictures. The agent baulked on allowing the deduction due to the lack of verifiable facts. I then leaned closer to the female auditor and told her that this client had written the screen play of a famous Disney animated movie in that very same home office. The auditor teared up and said, “My daughter loved that movie!”
We got the full deduction.
The IRS just waived a magic wand by listing some tips on the new law that offers an easier way to deduct a home office without substantiating expenses. Here are the facts:
This simplified option does not change the rules for who may claim a home
office deduction. It merely simplifies the calculation and recordkeeping
requirements. The new option can save you a lot of time and will require less
paperwork and recordkeeping.
Here are six facts the IRS wants you to know about the new, simplified
method to claim the home office deduction.
1. You may use the simplified method when you file your 2013 tax return
next year. If you use this method to claim the home office deduction, you will
not need to calculate your deduction based on actual expenses. You may instead
multiply the square footage of your home office by a prescribed rate.
2. The rate is $5 per square foot of the part of your home used for
business. The maximum footage allowed is 300 square feet. This means the most
you can deduct using the new method is $1,500 per year.
3. You may choose either the simplified method or the actual expense
method for any tax year. Once you use a method for a specific tax year, you
cannot later change to the other method for that same year.
4. If you use the simplified method and you own your home, you cannot
depreciate your home office. You can still deduct other qualified home
expenses, such as mortgage interest and real estate taxes. You will not need to
allocate these expenses between personal and business use. This allocation is required
if you use the actual expense method. You’ll claim these deductions on Schedule
A, Itemized Deductions.
5. You can still fully deduct business expenses that are unrelated to
the home if you use the simplified method. These may include costs such as
advertising, supplies and wages paid to employees.
6. If you use more than one home with a qualified home office in the
same year, you can use the simplified method for only one in that year.
However, you may use the simplified method for one and actual expenses for any
others in that year.
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