Tax Facts

Information to help individuals and small business navigate our complex Tax Laws. Not to be construed as tax advice. Contact your hired tax advisor for your specific tax situation and advice.

Home Office Measurement Methods

In today's economy and with today's technology it is becoming more common that people work as independent contractors, statutory employees or simply have side jobs in the evening that provide extra income. For each of these scenarios, a person might use part of their home as their place of business.

One of the first things you'll have to do when meeting the requirements for and intending to take a home office deduction on your tax return, is to estimate the amount of space in your home you're using for business. There are two ways you can do this:

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Safe Harbor Home Office Deduction

A taxpayer (either a business owner or an employee) may elect a simplified method to compute the home office deduction for tax years beginning on or after January 1, 2013 without having to substantiate, calculate, and allocate deductible home office expenses. This is referred to as a safe harbor method of taking the home office deduction.

Under the safe harbor, the deduction is equal to $5.00 times the number of square feet of the home office. It is limited to a maximum of 300 square feet. So even if your home office is 500 square feet, the maximum deduction you can take is $1,500. Additionally, the deduction cannot exceed the taxpayer's gross income from the business (and this has to be calculated as a percentage if you are conducting your business elsewhere for parts of the day, week or year).

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Home Office Deduction by Employees

Let's say you're an employee of a business and you use your home office exclusively for business work that you do at home. Can you take a home office deduction? The answer is yes, but to qualify, you must not only meet the exclusive use requirement but your use of this office must also be for the convenience of the employer (and not just your own).

Generally speaking, your home office expenses are subject to the 2% floor of your adjusted gross income. And it only applies to those taxpayers who itemize their deductions. There is an exception to this rule, only if your are classified as a statutory employee. This is not a common status for employees; but if it applies to you, the deduction is not subject to these limits.

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