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Will You Take the Home Office Tax Deduction for 2013?

by Miranda Marquit

I actually take the home office tax deduction for my business. I’m in a good place, where the deduction helps reduce my income — without AMT worries. Additionally, since I don’t include home depreciation in my deduction, I don’t have to worry about what happens if I sell my home for a gain (not that it’s likely to gain in value anytime soon).

However, some are reluctant to take the home office tax deduction because it’s such a complex process. In order to take the deduction, it requires figuring out what percentage of your home you are using, and then calculating your deduction based on that information. You can deduct a portion of your utilities and mortgage/rent, but the whole process can be off-putting.

2013 new home office tax deductionsStarting this year, though, the home office tax break is a little easier to take. For 2013 taxes (you can’t use it for 2012 taxes), it’s possible to choose how you want to take the home office deduction. You can use the old method, or you can deduct $5 per square foot, up to 300 square feet (for a $1,500 deduction).

I’ve run the numbers, and, in my case, it will make more sense to take the $5 per square foot. My accountant will probably happy, too, since this is a much easier way to figure up the deduction.

Should You Take the Home Office Tax Deduction?

While I take the home office tax deduction, it isn’t something that everyone feels is in their best interest. First of all, you need to make sure that your office space qualifies. Because my home office space is actually located in a room that is used for something else, I can’t actually figure my deduction based on the total square footage of the room. Instead, I can only deduct the area that is actually used to conduct my business. That amounts to about 24 square feet.

For some, taking the deduction isn’t worth the trouble of figuring it. After all, if we’re talking about a small space, it might be more trouble than it’s worth. In my case, even though the deduction isn’t very big, it’s still been enough, in some years, to keep me out of the next highest tax bracket. Indeed, we are often right on the line, and that deduction, small as it is, makes a difference in my taxes. But it might not be such a big deal to you.

For tax year 2013, though, it might be worth it to tax the deduction, since it will be easier to figure out, up to $1,500. If you can get another deduction without much trouble, it might make sense to take the deduction.

You do need to be careful, though. The home office tax deduction is one of those items that can trigger you paying the AMT. Carefully consider your options, and the impact the home office tax deduction might have on your tax situation. Look at the positives and the negatives. Additionally, remember that any business tax deduction that you take can only be used if the expense is truly related to your business.

The IRS doesn’t consider the home office tax deduction as big a red flag for audit as it used to, but there is still a chance that your return might be a little more closely scrutinized if you claim certain deductions. Be scrupulous in the deductions you take so that you avoid problems down the road, and make sure that you carefully document your expenses so that you have records in case you are audited.

Photo credit: ghz.


Published or updated January 24, 2013.
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{ 4 comments… read them below or add one }

1 Uclalien

“…some are reluctant to take the home office tax deduction because it’s such a complex process.”

What’s complex about taking the interior square footage of your office and dividing it by the exterior square footage of your house? It’s basic math. You take the resulting percentage and multiply it by any expenses you have related to your home office (rent/mortgage, gas, electric, etc.).

This new $5 per square foot calculation seems like a horrible idea for almost any home business. The only way I can see it making sense is if you have a tiny office in a large home. For instance, I have what I consider to be an average size office for my home size. It makes up approximately 10% of my home’s total square footage. The $5 calculation would result in a deduction of ~$600; whereas, the percentage of home calculation results in a deduction of ~$1,800.

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2 Uclalien

“…even though the deduction isn’t very big, it’s still been enough, in some years, to keep me out of the next highest tax bracket.”

One additional note. Maybe I’m reading too much into this quote, but it makes me think you don’t understand marginal tax rates. But even if you do understand that marginal tax rates only apply to the next dollar earned, it could definitely lead a less knowledgeable reader to believe that the next highest tax bracket could apply to your entire income. In either case, as a person giving financial advice,  you should probably be a little clearer.

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3 Jennifer

My taxes for 2013 are definetly going to be trickier than in the past. This year I’ve started some side incomes and a blog. With my side income I have to keep track of milage, expense receipts, and possibly the home office portion.

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4 Ryan Guina

Tracking your deductions is worth it, Jennifer. It can ad up to some very substantial savings over the course of the year!

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