Home Sweet Home: Home is Where the Tax Deductions Are


As a speaker, you probably have a home office like I do. That comes with a tax deduction, for which the IRS now offers a simplified calculation method. That’s right. The IRS actually simplified something for a change. It has been a popular myth that taking the home office deduction would lead to an audit, but here’s some good news. In the past, the IRS frequently questioned this deduction, but we have Dr. Nader E. Soliman to thank for the IRS’ change of heart — that and the fact that the U.S. Supreme Court rejected the IRS’s case and made this deduction a very logical one if you qualify. Beginning this year, there’s a simpler way to figure out the business use of your home. The qualification rules remain the same no matter which method you use.

Is Your Home Office Deductible?

Here’s what the IRS is looking for to consider your home office deductible.

1.       Regular and Exclusive Use.

You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room, as long as it doesn’t double as your TV room or a guest room.

2.       Principal Place of Your Business.

You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate freestanding structure, such as a studio, garage or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients or customers.

Additional tests for employee use.

If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the qualifications discussed above plus both of the following:

• Your business use must be for the convenience of your employer.

• You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

The Simplified Calculation

The IRS now offers this simplified method of determining your deduction, which you can use when you file your 2013 tax return next year. The rate is $5 per square foot of the part of your home used for business. The maximum square footage allowed is 300 square feet. This means the most you can deduct is $1,500 per year. Not bad — and so simple. Almost no calculator needed to figure this out.

You can choose either this simplified method or the old-fashioned actual expense method for any tax year. And every year, you can choose which method to use on your tax return, but you cannot change methods within the same year. This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and record-keeping requirements. The new option can save you a lot of time and will require less paperwork and record keeping. And don’t forget your storage space! Did you know that storing materials in your garage — all those old business cards, one sheets, video cassettes from a long time ago, old books that shouldn’t or can’t be sold — all qualify for the home office deduction?

A Few More Tips

Here are a few more things to keep in mind. If you use the simplified method and you own your own home, you cannot depreciate your home office, but you can still deduct other qualified home expenses, such as mortgage interest and real estate taxes without allocating these expenses between personal and business use. (If you use the actual expense method, you’ll need to allocate these expenses). You can still fully deduct business expenses that are not related to the home if you use the simplified method. These may include costs such as wages paid to your employees, advertising and supplies. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one home in any given tax year. However, you may use the simplified method for one home and actual expenses for any others in that year. And, of course, before you decide which method to use, it’s wise to meet with your tax accountant and make sure you are making the best decision for your personal situation.

Speaker Magazine Editor’s Note: Please consult with your tax professional regarding allowable home-office tax deductions.

Steve Hoffman

Steve Hoffman

Speaker, Author, Consultant at The Tax Translator
Steve Hoffman, EA, CFP, MT, is known as The Tax Translator. Hoffman is the author of "Seven Steps to a Tax Compliance Program at Your University."
Steve Hoffman
Steve Hoffman

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