Many self-employed taxpayers work from home. But not all of them can deduct expenses for the “business use of their home.” The tax worksheet (Form 8829) may be only one page long, but it’s 43 lines of mind-numbing detail (at least for one more year) that you are better off skipping if you see that you don’t meet the threshhold requirements.
In order to qualify for the “business use of the home” deduction, there must be a section (or sections) of your home which you use exclusively and regularly as your principle place of business. The deduction amount is based on square footage dedicated to this purpose. Therefore, no matter how often you find yourself on your laptop in that 3′ x 3′ area of your mancave occupied by the Lazyboy, if you ocassionally flip on the TV from that same spot, or host superbowl parties or such, you cannot satisfy the “exclusivity” prong of the test.
The good news is the IRS recently announced a new simplified option for “business use of the home” that will apply to 2013 taxes (during the 2014 filing season). Taxpayers will be able to opt for a straight $5.00 per square food deduction (capped at $1,500 per year) instead of stressing over dreaded Form 8829. It is believed that more taxapayers will take advantage of the tax relief afforded by this deduction and will save taxpayers something like 1.6 million hours of work and recordkeeping annually. However, the basic exclusivity requirments explained above will remain in place.