Simplifying Home Office Deductions

QUESTION:

Is there a simple method of deducting expenses for a home office?

ANSWER:

There is a new simplified option for claiming the home office deduction. The IRS has provided the “safe-harbor” method that individuals can use to determine the amount of their deductible home office expenses, effective for tax years beginning on or after Jan. 1, 2013. Taxpayers who use this method can deduct an amount determined by multiplying the allowable square footage (up to 300 square feet) by $5 for a maximum of $1,500. This approach provides an alternative to the calculation, allocation and substantiation of actual expenses that would otherwise be required.

While taxpayers claiming a home office deduction under the safe harbor must still satisfy all of the requirements under Code Sec. 280A (i.e., the deduction can only be claimed for a part of the home used exclusively on a regular basis for business purposes), the safe harbor will substantially reduce the taxpayer’s record-keeping burden. A side benefit is that claiming a home office deduction will likely be less of an audit flag for taxpayers. With the issues that arise in calculating, allocating and substantiating deductible expenses being resolved by the safe harbor’s formula, there are fewer issues that might prompt an IRS examination.

This method doesn’t apply to an employee with a home office if he receives advances, allowances or reimbursements for expenses from his employer. The safe harbor is an alternative to deducting actual expenses. Accordingly, a taxpayer using the safe-harbor method for a tax year generally can’t deduct any actual expenses related to the business use of that home for that tax year, with the exception of otherwise allowable, nonbusiness, home-related deductions (such as deductions for qualified residence interest, property taxes and casualty losses).

This new alternative provides a great option for restaurant owners who generate paperwork at home. To prove that you’ve got an area set aside for a home office, simply clear your desk, take a picture of the area, and hold on to it in case of a future audit!

QUESTION:

Is there a new mileage rate for 2013?

ANSWER:

The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase by one cent to 56.5 cents per mile for business travel after 2012. Employers also can use this rate to reimburse employees who, under an accountable plan, supply their own autos for business use, such as delivery drivers or general managers who use their own personal vehicles for errands.

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Michael J. Rasmussen is the owner of Rasmussen Tax Group in Conway, Arkansas. Visit rasmussentaxgroup.com for additional insight into restaurant-specific tax strategies and technology programs.