New Tax Break For Self-Employed Taxpayers

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filing-taxesJohn Dudley, owner of United Home Experts and United Painting, in Ashland, Mass., has had an office in his home since 2001 but has never claimed the home-office deduction. “I was always told by my accountant that there was a very high probability of triggering an audit,” he says.

Dudley and other self-employed people may want to give the deduction another chance. Under new IRS rules, taxpayers will be able to use a simple formula based on the size of their home offices.

The streamlined method, available for 2013 returns, lets taxpayers deduct $5 per square foot, up to a maximum of 300 square feet, or $1,500. Taxpayers who choose this option won’t have to fill out a 43-line form listing actual expenses, such as the percentage of utilities used in their home office. Dudley estimates that the new rule would allow him to deduct $720 from his taxable income-a savings of about $200. (In some cases, itemizing will get you a bigger deduction. Ideally, you should calculate the deduction both ways to see which delivers the better break.) The rule doesn’t change eligibility requirements. The office must be used regularly and exclusively for business. Employees can’t deduct a home office unless their employer requires them to work from home.

But if you qualify, there’s no reason not to claim this tax break, says consultant Gene Fairbrother, of the National Association for the Self-Employed. The IRS is “giving you an opportunity. Don’t be afraid to take it.”

Source: KIPLINGERS

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