Saturday, January 19, 2013

Simpler option for calculating the home office tax deduction

As part of ongoing efforts by the Administration to reduce paperwork burdens, the Internal Revenue Service (IRS) announced today that it is providing a new, simpler option for calculating the home office tax deduction, allowing small business owners and employees who work from home and who maintain a qualifying home office to deduct up to $1,500 per year.

The IRS also expects taxpayers to save more than 1.6 million hours per year in tax preparation time from this simpler calculation method.

The new option allows qualified taxpayers to deduct annually $5 per square foot of home office space on up to 300 square feet, for as much as $1,500 in deductions. To take advantage of the new option, taxpayers will complete a much simpler version of the current 43-line form.

However, normally, care providers should not use this option, they can deduce much more in the way it has been done so far, calculating the percentage of space used only for child care, adding the percentage of space occasionally used to childcare, multiplied by the hours that it is used in the year and divided by thetotal hours of the year, and divided the sum by the total area of the house. This number, which we call the "FORMULA SPACE/TIME”, is used to calculate the percentage that is deductible as a business expense of devaluation of the house taxes and interests paid for the house, and cost of the bills.

Make sure the person doing your taxes correctly calculates that percentage.