NORMAN — The IRS has announced a new, simplified method for determining the in-home office deduction that does not require extensive record keeping. It may be easier than using the time-consuming “actual expense method” to determine the amount you can deduct for the business use of your home, but is it right for you?
Qualified business use of a portion of the home generally means:
· Exclusive and regular use as the main place where you conduct your business, or meet with customers, clients or patients.
· Regular use as a storage area for merchandise you sell or product samples, if your home is the only place you conduct your business.
· Regular use in providing daycare services for children, the elderly or disabled persons.
The new optional deduction is a flat $5 per square foot of business use up to 300 square feet, for a maximum deduction of $1500. Period. If you choose to use the new simpler option, you can still deduct the full amount of your mortgage interest and property taxes as itemized deductions, without worrying about calculating the percentage based on the business use portion of the home. You don’t have to tally up the direct or indirect costs of utilities, repairs or maintenance expenses, either.
Before using this new optional deduction, however, you first need to determine if it is the best method for your situation. Cynthia Jeanguenat, EA, a federally licensed enrolled agent and tax specialist with Horizons Unlimited Tax and Business Services in Virginia Beach, Va., is not touting the simplified method to her longtime clients.
“We don’t want them to stop keeping track of their expenses. I compare this simplified office-in-home deduction to business vehicle expenses. If a taxpayer keeps good records and uses their vehicle more than 50 percent for business, then it’s possible the actual vehicle expenses will exceed the standard mileage deduction; but if a taxpayer does not keep records for the maintenance, gas, repairs and insurance, but does record the business miles driven during the year, then they can take the standard cents-per-mile deduction. That may not be the better deduction, but if they don’t keep records, then that may be all they can qualify for.”