When the IRS simplifies something, I'm usually the first to cheer. But home business owners might be wise to consider carefully the new simpler home office deduction.
Beginning with your 2013 business tax return, you can choose not to file Form 8829 to calculate home office space expenses, and instead use a simple calculation:
Multiply the allowable square footage of your home business space by a prescribed rate. The allowable space can be no more than 300 square feet; currently the rate is $5 a square foot, so the current deduction maximum is $1500.
The allowable space is the portion of your home that qualifies as being used "regularly and exclusively" for business purposes. It sounds simple, but there are some limits you should know about.
One issue to note: If you take the simplified home office deduction, you can't depreciate the part of your home used for business.
Two CPA's were quoted in an article in Mainstreet, warning of other limits to this deduction:
Wendy Valentino, a CPA at Cohen Greve & Company CPA, says you can't claim a loss carryover in a year when you use this simplified method. She also notes that "any amount in excess of gross income may not be carried over, unlike the regular method."
And Gail Rosen, CPA, says, "Once you make an election to use this safe harbor method for the home office ... you cannot later go back and amend your tax return for that year."
That's why we have CPA's and why you should consider your specific situation and talk to your CPA (you do have one, don't you?) before making a decision to take this simplified deduction for your home business.
More on the Simplified Home Office Deduction