Simpler Taxes Are Not Always Better

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Another change in the tax situation for 2013…

Many folks are afraid to claim their duly earned home office deduction, because they fear they will be audited. About 3.5 million folks used this deduction in the past years- which is a lot lower than the number of folks who maintained a home office.  (NASE- the National Association for the Self Employed- did a survey in 2008 and found more than 60% of those entitled never took this deduction.)

(We work with our clients to insure they CAN deduct a home office for valid reasons and properly compute all related expenses.  That includes depreciation, utility bills, and real estate taxes.)

But starting in 2013, instead of computing the percent of the home used and utilities, an easier process will be employed- for those who still don’t want to do the work to garner the more significant deduction.

For this year and beyond, the IRS will let folks deduct up to 300 square feet of office space- at a flat rate of $ 5 per square foot of office.  (That means the maximum deduction is $ 1500; our clients obtain an average deduction of multiples of that figure.)

Given the fact that this new process is a very simple calculation, the odds of the novice making a mistake on form 8829 is much lower.  Which means that the odds of getting audited for submitting the form are much lower.

Form 8829 Home Office DeductionBut, as you can see, this (typical) example yields more than $ 4500 in deductions.  Yes, the $ 1500 maximum deduction is much simpler to compute.  But, you missed out on saving the income taxes on $3000+, PLUS you have lowered your payroll tax obligation by almost $ 642!  So, if you have a larger office, higher utility bills, or a large mortgage interest rate, this simpler method is not a true benefit.

 

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12 thoughts on “Simpler Taxes Are Not Always Better”

    1. It is very simple, David. I just don’t think it’s worth its weight in simplicity!
      And, I also don’t think that’s quite the issue in this case. Because businesses that don’t operate out of one’s homes have a valid deduction (rent, utilities, etc.)- this is to make everything a little more level playing field for those that operate from home and don’t have such separate expenses.

  1. Some how I missed this post…so I don’t even know how I got my day started yesterday! Blurgh…
    You are looking at someone who is NOT afraid to deduct the home office! Last year was the first home office deduction I made and it saved me sooooo much money. Important, very important! Excellent article!
    Lisa Brandel recently posted..The Hummingbird by Lisa Brandel

    1. I agree, Alessa. But for those bound and determined to do their own taxes (and are not cognizant of all the capabilities that are available), this does let them get a benefit (albeit not one worth its weight in paper…:-) )

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  3. Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out IRS Form 8829, I found a blank form here http://goo.gl/P0u4Y2. This site also has some tutorials on how to fill it out and a few related tax forms that you might find useful.

    1. First after all, it is a pleasure to meet you, Jill. Please come back often!
      Secondly, I STRONGLY recommend that folks only obtain forms from http://www.irs.gov or their tax prpeparer. That insures they are up to date, correct, and have no hidden goodies buried in the PDF form. (Security!!!)
      Getting advice from a site is a grand idea, but unless you absolutely trust the author, stick with the tried and true. (I can vouch for all my PDF links, but they are just that…links to the approved IRS site.)

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