The Internal Revenue Service is offering people who work from home an easier way to deduct the cost of their home offices.
Under the new formula, home-based workers will be allowed to deduct $5 per square foot of office space, up to 300 square feet, for a total deduction limited to $1,500. The new option is available for the 2013 tax year, meaning for tax returns filed in 2014.
If they prefer, they could stick with the old way, which involves adding up all their housing expenses _ mortgage interest, property taxes, insurance, electricity and so on _ and deducting a percentage that’s equal to the share of the home’s space that is devoted to the office.
So if your home office _ which must be used exclusively for work _ takes up 10 percent of the space in your home, you could deduct an amount equal to 10 percent of the home-related costs.
The release of the new deduction formula coincides with an upsurge in home-based businesses since the last recession, one of the worst since the Great Depression. According to the American Community Survey compiled by the U.S. Census Bureau, 5.8 million, or 4.3 percent of the U.S. workforce, worked the majority of the week at home in 2010. This is an increase of about 1.6 million since 2000.
Park Ridge, N.J., accountant Thomas Braun predicted the streamlined option will be popular. “A lot of people are going to jump on this,” he said. “It’s going to be very easy to determine. You’re not going to have to worry about getting 12 months of bills together.”
With almost 3.4 million taxpayers claiming home-office deductions nationwide, the new option is expected to cut the paperwork burden on taxpayers by 1.6 million hours a year, according to the IRS.
Braun estimated that 10 percent to 15 percent of his clients take the deduction, which is available both for the self-employed and for those who work for others, but at home.