In part one of this post, we noted that the home-office deduction has come to have some fairly complicated features for such a basic deduction.
For example, as we discussed, the IRS has some very specific considerations in mind regarding what qualifies as "exclusive" use of a home-office space for deduction purposes.
In this part of the post, we will discuss how the IRS has tried to simplify the calculation for the home-office deduction.
The old calculation had become quite cumbersome because it was so detailed about what could be included. It involves pro-rating various housing-related expenses and applying them to the office space.
Taxpayers still can use this older method to calculate the amount of their deduction. But there is now also a new, simplified way to make the calculation.
In order to do the simplified calculation, you need to know the number of square feet in your home-office space. Once you have that number, however, all that's needed is to multiply the square footage by $5.
To be sure, there is a limitation on the number of square feet that can be included. The limit is 300 square feet.
Taxpayers will have the choice of whether to use the older, pro-rating method or the new, simplified calculation. And no matter how large your office is, having that choice is surely a good thing.
A simplified calculation like this is also a reminder of how good it would be to have a more simplified tax code. The sheer complexity of the code can cause compliance problems that result in tax audits, disputes and litigation. Much of this could be avoided altogether with a more straightforward tax code.
Source: Forbes, "What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More," Kelly Phillips Erb, Jan. 5, 2014