Feb
20

Tax Time Approaches!

By Michelle

Did you know that the IRS recently amended residence-based business deductions to add an easy-to-calculate safe harbor method? Here’s what you need to know:

  1. Filers can now determine their allowable deduction by multiplying the square footage of the portion of their residence allocated for business purposes by $5.00 up to a maximum 300 square feet ($1,500) for the taxable year starting January 1, 2013. “Allocated for business purposes” is defined as: a portion of a owned, rented, or leased dwelling that is used exclusively for business purposes, a place to meet with patients, clients, customers in the normal course of business, a separate structure used in connection of trade or business, or space used on a regular basis for the storage of inventory or product samples used for your business.
  2. You can still use the old $280 method for calculating your allowable deduction. You can switch back and forth between methods from taxable year to taxable year as you see fit. This doesn’t apply to you if your business pays you advances, allowances, or reimbursements for your home office.
  3. You can’t declare a deduction for an amount larger than the gross income of the business associated with your home office makes for the taxable year.
  4. Spouses, roommates, or partners are each eligible for their own deduction for a home office up to 300 square feet. If the allotted space for your business-associated allotment fluctuates from month to month, provide your average for the year. For example, if you have a home office for the first six months of the year that’s 200 square feet, your calculation should look like this: (200 + 200 + 200 + 200 + 200 + 200 + 0 + 0+ 0+ 0+ 0+ 0)/12 months) x $5.00 = $500.

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