Working from home can be a luxury to the millions of entrepreneurs and employees who maintain a home office. In addition to scheduling flexibility and more authority over their work environment, individuals who complete their job responsibilities at their residence may also qualify for a home office deduction at tax time. While this write-off can greatly help taxpayers reduce their liability, it is also one of the most under-utilized benefits that individuals claim. This is largely because the Internal Revenue Service scrutinizes these deductions closely, which often prompts many legitimate and eligible business owners and employees to avoid claiming it over fears that it will trigger an audit.
Fox Business recently cited industry data, which shows that although 13.4 million Americans worked from home at least one day a week in 2010, only 3.4 million claimed a home office deduction that year. Although this write-off may initially seem confusing or gain a reputation for being a "red flag," new rules may make it simpler for filers to claim the benefit. The IRS recently unveiled a new "safe harbor" provision for those claiming the home office write-off for the 2013 tax year. The provision allows qualified filers to take the deduction, which will be capped at $1,500 per year based on $5 a square foot for up to 300 square feet.
Same eligibility requirements still apply
The new rule is designed to both make the process easier for filers, and quell some of the intimidation legitimate business owners and employees may feel about claiming the benefit. Under the safe harbor provision, taxpayers must still fall under the previous eligibility guidelines to qualify for the write-off. This means that a home office space must be used regularly and exclusively for business.
Although homeowners who use this new deduction 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 of their tax forms. The IRS notes that those deductions do not need to be allocated between personal and business use, as is required under the regular method. In addition, business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.
Workers who are unsure whether they qualify for the benefit can explain their work circumstances to their tax preparer to gain more insight into eligibility.
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