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Tax deductions: home office rules to be simplified

Many people work out of their homes. Nationally, the number is quite high. The number of taxpayers who took the home-office deduction was over 3 million in 2010, according to the Internal Revenue Service.

The IRS is aware, however, that in the past the calculations required to claim the deduction were pretty complicated. The form that taxpayers must complete in order to do so contains no fewer than 43 lines.

Such detailed rules are not only a headache for taxpayers seeking to comply. They can result in misunderstandings between the IRS and taxpayers that lead to tax audits or tax litigation.

To address this problem, the IRS has announced a change in the rules on home-office deductions. It will go into effect for tax year 2013, which means that it will apply to taxes filed in the tax season that starts a year from now.

The goal is to simply the rules to enable taxpayers to calculate the home-office tax deduction more simply. Taxpayers will be able to claim deductions up to $1,500. This figure reflects the deductible amount of $5 per square foot of home office space, up to a limit of 300 square feet.

The current rules are acutely lacking in such simplicity. Business owners who seek to claim the deduction under those rules must make complicated calculations that split expenses into several different categories. They must also take account of depreciation on the home where the office is located.

The IRS describes the new rule as a common-sense rule, designed to make it easier for taxpayers to take the home-office deduction. The agency is encouraging taxpayers to consider using it as they weigh their tax planning options for next year.

Source: "IRS Announces Simpler Rules for Home-Office Deductions," Bloomberg, Richard Rubin, 1-15-13

Our firm handles situations similar to those discussed in this post in Texas. To learn more about our practice, please visit our page on IRS tax audits.

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