We’ve talked a lot about can’t-miss tax deductions for the self-employed but I wanted to highlight one that can lead to major savings. That’s right, this is potentially the secret weapon for small business tax deductions.
Taxpayers can elect to take a simplified deduction for the business use of the taxpayer’s home. The deduction is $5 per square foot, with a maximum square footage of 300. Thus, the maximum deduction is $1,500 per year. Here are the details of this simplified method:
Annual Election – A taxpayer may elect to take the safe-harbor method or the regular method on an annual basis. Thus, a taxpayer may freely switch between the methods each year. The election is made by choosing the method on a timely filed original return and is irrevocable for that year.
Depreciation – When the taxpayer elects the safe-harbor method, no depreciation deduction for the home is allowed, and the depreciation for the year is deemed to be zero. Read More
If you use your home for business, there are expenses you can deduct on your tax return. The home office deduction is available to both home owners & renters alike. The home must be used by a self-employed individual or an employee who works from home for his employer’s convenience.
This deduction has been available for a few years now, however with the tax year beginning January 1st, 2013 (filing starting January 1st, 2014), the Internal Revenue Service issued Rev Proc. 2013-13. This revenue procedure details an optional safe harbor available to individual tax payers for calculating a home office deduction.
The individual can claim the Home Office Deduction based on either the Simplified Method or the Regular Method (Details Follow).
• A standard deduction of $5 per sq foot for a home used for business up to a maximum of 300 sq feet.
• No home office depreciation deduction is allowed nor is a later recapture for the years the simplified option was used.
• Allowable home related expenses, such as, Mortgage Interest or Property Taxes is claimed in full on Schedule A. Read More
Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning this year, there is a new, simpler option to figure the business use of your home.
This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and record keeping requirements. The new option can save you a lot of time and will require less paperwork and record keeping.
Here are 6 facts the Internal Revenue Service wants you to know about the new, simplified method to claim the home office deduction.
1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.
2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year. Read More