Simplified Method for Claiming Home Office Deductions

The IRS recently released an optional safe harbor method for deducting home office expenses that will ease the recordkeeping burden for taxpayers in 2013. Although this simplified method reduces the administrative and substantiation obligations of small business owners, the deduction will likely be less for most of our clients than under the regular method. The safe harbor home office deduction is calculated by multiplying the square footage of the home used in a qualified business by $5. The square footage of the home office cannot exceed 300 feet; therefore, the deduction is capped at $1,500. If the safe harbor method is elected, the taxpayer may not depreciate the home office portion of their residence, but may claim allowable mortgage interest, real estate taxes and casualty losses as itemized deductions on Schedule A. Under the regular method, a taxpayer has to allocate these itemized deductions between Schedule A and the home office deduction, as well as, compute depreciation and allowable deductions for insurance, repairs and utilities on the part of the home used in a qualified business.  For more information, go to www.bkl-cpa.com and click on News.