Ask a goalgami Expert:Answer

Have a financial question?SUBMIT>



Question:


What is new in home-office deductions that I should be aware of?
-Caitlin1976


Answer:


If you use part of your home entirely for engaging in a business, you can deduct a portion of your rent or mortgage payment, as well as part of your utility bills. The traditional method for calculating the deduction is to measure the space of the part of your home that constitutes your office and divide it by the total floor space of your home. Remember, you can only claim the deduction if that part of your home is used for legitimate business activity and for no other purpose. Say you own a 2,000-square-foot house, your office is 15 feet by 20 feet, or 300 square feet, your mortgage payment is $1,400 a month and you spend $100 a month on utilities. Your office is 15 percent of your house (300/2,000), so your deduction would be $225 a month (15 percent of $1,500) or $2,700 a year.

As of 2013, the Internal Revenue Service is letting taxpayers use a simplified method to calculate their deduction. They can measure the square footage of their office and deduct $5 a foot, up to $1,500 a year. They can still use the traditional method, and for most taxpayers that probably would work out better. The example above doesn't make any unreasonable assumptions about the size either of the office, the house or the expenses, yet the deduction would be nearly twice as much as the maximum under the new method. If you've got a home office, run the numbers each way and use whichever one works to your advantage.

-Conrad de Aenlle



< BACK