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Simplified Home Office Deduction Calculation

The IRS is always coming up with new rules and regulations. The myriad of rules and regulations makes it extremely difficult for the average person to know the rules. There is even arguments between CPA's about interpretation of certain rules.

This week, in an attempt to reduce calculation time by taxpayers when preparing tax returns, a new method for computing the Home Office Deduction was issued by our friends at the IRS. So we will take a look at what they did and what it means to you, the taxpayer.

The Simple Home Office Calculation

This article is not intended to discuss the rules regarding the legitimacy of your home office deductions, it is intended instead to tell you how to calculate the home office deduction under the simplified method. The IRS rule is a quick and easy calculation beginning in tax year 2013 and beyond

So how simple is it? All you have to do is measure the square footage you are using for home office and multiply it by $5. That is it. You are done!!!

There are some caveats to using this method. (1)You can only use this method if your home office deduction is not more than $1500. (2)You cannot depreciate the portion of your home used in your business, but (3) you 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. For example, my home office is 180 square feet. So if I were able to take the home office deduction I would multiple $5 by 180 and my deduction for the home office is $900. I will still take the mortgage interest and taxes on my Schedule A and be able to take the home office deduction.

For those of you who hate keeping track of all of your home office related expenses, you can use this simplified method. However, you can only use this method if your home office deduction is not more than $1500 and your home office qualifies for the deduction.

Is this Really Easier???

Absolutely this calculation method is easier, but you may not get as much of a deduction you are entitled to take. Without going through the entire calculation, you aren't going to know which method saves you the most money.

But just like doing the auto deduction, if you want to pick the method that is best for you, then you have to perform the more complicated calculation before you know if you are getting the best deduction. For those of you who would take the Home Office Deduction if you didn't have to do such a complicated and time consuming calculation, then you are in luck and this is another tax deduction you would not other wise take.

IRS Changes Filing Deadlines for W-2 & 1099 Forms

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