A New Option For Calculating the Home Office Deduction

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If you work from home for business, the IRS has potentiallyprovided you with some relief in the form of less paperwork required to claimthe home office deduction. You may soon be able to claim the home officededuction based on a simple calculation.

The home office deduction
The rules for claiming a home office deduction will be staying thesame. You still must regularly and exclusively use a portion of your home foryour business to qualify (reference: IRS Publication 587). However, instead ofclaiming the deduction by completing the 43 line Form 8829, taxpayers may soonbe able to complete a significantly simpler form. Specifically, the home officededuction is calculated at $5 per square foot. There’s a catch though.Taxpayers will only be able to use this simple option if their home expenses donot exceed $1,500 or 300 square feet. In addition, the new option won’t beavailable until the 2013 tax year, which you’ll be filing in the beginning of2014.
What about depreciation, mortgage interest,real estate taxes and other expenses?
You still will be able to claim these expenses as an itemized deduction onSchedule A of your form 1040. In addition, these deductions do not need to beallocated between personal and business use, as is the case with the regularmethod.  However, you won’t be able toclaim any depreciation expense as an itemized deduction, which is allowed underthe regular method.
What should I do for my 2013 tax return?
If you run a home-based business, then you need to assess whetherthe $5 per square foot calculation will be more or less than the $1,500 limit.If it’s below the limit and you don’t have significant depreciation expenses,then it may make a lot of sense to use the new simple form. If the amount iswell over $1,500 and/or you have large depreciation expenses, then goingthrough the old Form 8829 will probably be your best option.
What's the best method for our business
You should work on a mixture of the above, but start with online advertising asthat's easiest method to generate leads quickly. You'll need to be mindful ofyour daily spend, but leads should come through that channel.

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