John Dudley, owner of United Home Experts and United Painting,
in Ashland, Mass., has had an office in his home since 2001 but has
never claimed the home-office deduction. "I was always told by my
accountant that there was a very high probability of triggering an
audit," he says.
Dudley and other self-employed people may want to give the
deduction another chance. Under new IRS rules, taxpayers will be
able to use a simple formula based on the size of their home
offices. The streamlined method, available for 2013 returns, lets
taxpayers deduct $5 per square foot, up to a maximum of 300 square
feet, or $1,500. Taxpayers who choose this option won't have to
fill out a 43-line form listing actual expenses, such as the
percentage of utilities used in their home office. Dudley estimates
that the new rule would allow him to deduct $720 from his taxable
income--a savings of about $200. (In some cases, itemizing will get
you a bigger deduction. Ideally, you should calculate the deduction
both ways to see which delivers the better break.) The rule doesn't
change eligibility requirements. The office must be used regularly
and exclusively for business. Employees can't deduct a home office
unless their employer requires them to work from home.
But if you qualify, there's no reason not to claim this tax
break, says consultant Gene Fairbrother, of the National
Association for the Self-Employed. The IRS is "giving you an
opportunity. Don't be afraid to take it."