The Evanston Chamber of Commerce recently reminded home-based business owners that the Internal Revenue Service (IRS) says they can use a simplified method for claiming deductions for business use of a home.
Introduced in tax year 2013, the optional deduction for home offices is designed to reduce the paperwork and record-keeping burden on small business owners. This deduction is capped at $1,500 per year, based on $5 per square foot for up to 300 square feet of home office space.
Normally, home-based business owners fill out the lengthy Form 8829, requiring calculations of expenses, depreciations and carryovers. The simplified deduction requires only filling out a short worksheet, then entering the result on a tax form. Self-employed individuals may claim a home-office deduction on Schedule C, Line 30.
The simplified deduction does not allow homeowners to depreciate the portion of their home used as an office, but they can still claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A.
Business expenses such as advertising and supplies are still fully deductible with the simplified deduction. The office space in the home must still be used regularly and exclusively for business.