It has been reported that more than 52% of all businesses in the US now operate from home (Forbes, 10/22/13).
In light of these staggering figures, the IRS has made it simpler to report the home office deduction. While most people think a band makes its living on the road, a lot of band work can go down at home. For example, many musicians have a dedicated space where they practice their instrument in the home, or an office where all booking is handled. This could qualify as a home office!
How Does It Work?
You can still claim the “old” home office deduction by calculating certain expenses like mortgage interest or rent, utilities, etc. and multiplying the total expenses by the percentage of space utilized for your office. The record keeping requirements for this method can be burdensome.
Now the IRS has a simpler option – you can claim a standard deduction of $5 per square foot of your home used for business, up to a maximum of 300 square feet and a $1,500.00 total deduction for the year. This simplified calculation method eases the record-keeping requirements previously required to claim the deduction.
No matter which method you choose, you still must first qualify for the deduction. Despite the eased record-keeping requirement of the new method, it can have some drawbacks. For instance, your deduction could be lower under the new method. Also, any deduction amount in excess of your Gross Income cannot be carried forward under the new method.
IRS Publication 587 can help you determine if you qualify for the Home Office Deduction and decide which reporting method would be best for you. The publication can be found at: www.irs.gov/pub/irs-pdf/p587.pdf
Home office deductions could be the subject of an IRS audit, so be sure to review Publication 587 carefully or consult a tax professional before claiming the deduction.
CIRCULAR 230 DISCLOSURE: Per regulations governing practice before the Internal Revenue Service, any tax advice contained herein is not intended or written for use, and cannot be used, to avoid tax penalties that may be imposed on the taxpayer.