Hoakison v. Comm’r, T.C. Memo. 2022-117| December 5, 2022 | Paris, J. | Dkt. No. 16577-17
Short Summary: Mr. and Mrs. Hoakison (collectively, the “Hoakisons”) are long-time farmers. They own real estate used for farming and utilize various equipment to assist with their farming operations, including tractors and pickup trucks. In 2012, the Hoakisons also constructed a machine shed for a cost of $108,856, which was paid in cash.
The Hoakisons are not tax professionals and do not have advanced educations. Accordingly, for their 2013, 2014, and 2015 tax years, they relied on Mr. Powell, a farm management specialist with a master’s degree in agricultural education, to prepare their returns on their behalf.
The IRS selected the Hoakisons’ 2013, 2014, and 2015 tax returns for examination. The IRS disallowed many of the Schedule F, Profit or Loss from Farming (“Schedule F”), deductions they claimed related to their farming activities. The IRS also imposed accuracy-related penalties regarding the disallowed deductions and related underpayment of tax for 2013, 2014, and 2015.
The IRS reminded people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.
In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.
The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually. 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