If you’re among the many small business owners who regularly forfeit the home office tax deduction for fear of attracting an audit or because it is just too complicated to calculate, there’s good news for you out of Washington today.
The Small Business Administration and the IRS have coordinated to provide “a new, simpler option for calculating the home office tax deduction.” Taking the deduction will no longer require calculating the energy costs, mortgage interest, homeowner’s insurance, property taxes, and repairs you pay on your home office as a percentage of the entire home. Instead, small business owners and employees who work from a qualifying home office will have the option to deduct $5 per square foot of office space on up to 300 square feet, for as much as $1,500 in deductions annually.
According to the IRS’s calculations, the simpler formula will save taxpayers more than 1.6 million hours per year in tax preparation time. One hitch: the new rule won’t go into effect till tax year 2013. To take advantage of the option in April 2014, taxpayers will complete a simpler version of tax form 8829, and qualification rules, such as that the office be used exclusively for business, still apply.
Kristie Arslan, president of the National Association for the Self Employed, who has been advocating for four years for a simpler deduction option on behalf of her constituents, applauded the announcement. “At a time when many self-employed Americans feel as though they are swimming against the current, desperately working to expand and grow their businesses, this is a big win. It will provide our members some relief next tax season by allowing them to take an important deduction they long have qualified for but often forsake due to past complexity,” she said in a press release today.
Also in a joint online statement today Small Business Administrator Karen Mills and Deputy Treasury Secretary Neal Wolin said, “These new rules help our tax code better reflect the needs of America’s 21st Century workforce and especially small businesses, which play a vital role in our economy. Today, more than half of all working Americans own or work for a small business. An estimated 52 percent of small businesses are home-based, and many of these small businesses have home office space that would qualify for the deduction.”
Of course, if there’s a chance you’re eligible to deduct more than $1,500 for your home office, it could be worth plodding through the old 43-line tax form, depending what your time is worth.