It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, you won’t want to miss it.
S is for Simplified Option for the Home Office Deduction.
If you claim a home office deduction, you know that calculating the home office deduction can be a lot of work. To make it less complicated, the Internal Revenue Service (IRS) began offering an alternative. Beginning with tax returns filed in 2014 (so, the 2013 tax year), taxpayers could choose a simplified option for the home office deduction.
Under the rules for the simplified option for the home office deduction, taxpayers may claim a standard deduction of $5 per square foot of home used for business up to a maximum 300 square feet. For example, if your home office is 250 square feet, the simplified option for the home office deduction would allow you to claim $1,250 (250 sq. feet x $5) as a home office deduction.
Under the regular method, taxpayers must figure the number of square feet and then calculate the percentage of your home attributed to business in order to pro-rate expenses. Using the above example, let’s assume that your 250 square foot office is located in your 2,000 square foot home. Your office is 12.5% of your home. That means that you must pro-rate your allowable expenses. For example, if your electric bill was $500, then you could deduct $62.50 ($500 x 12.5%) for electric as part of your home office deduction. As you can imagine, claiming the home office deduction using this method requires you to keep excellent records of your actual expenses.
You may choose to use either the simplified method or the regular method for any taxable year. Once you’ve made a decision, you’re committed for the year: you can’t choose one method for a taxable year and then switch to the other method for that same year. You can, however, switch in a subsequent year but if you do, you need to make adjustments for depreciation.
For more Taxes A to Z, check out:
- A is for Affordable Care Act Reporting
- B is for Back Pay
- C is for Canceled Debt
- D is for Dependents
- E is for Eligible Rollover Distributions
- F is for Fat Finger Error
- G is for GI Bill
- H is for Harvesting Losses
- I is for Investment Income Expense
- J is for Junk Bonds
- K is for Strike Price
- L is for Late Filing & Late Payment Penalties
- M is for Marginal Tax Rate
- N is for NSF
- O is for Over-The-Counter Medications
- P is for Pease Limitations
- Q is for Quid Pro Quo
- R is for Rounding Off