By Kerri Tassin, J.D., CPA
A February 2013 online article in Forbes estimated about 30 million Americans work from home, and the number of telecommuters — which includes both self-employed workers and employees working from home — continues to grow. Despite Yahoo’s 2013 decision to prohibit its workers from telecommuting, the telecommuting trend is predicted to continue to expand.
The federal government appears to have joined the ranks of employers advocating the shift to telecommuting for its employees. Congress passed the “Telework Enhancement Act” in December 2010. According to a 2012 report that discusses the progress made since the act was passed, telecommuting for federal employees has increased and will continue to do so in the future.
With this apparently increasing emphasis on telecommuting, Congress passed legislation in 2013 that now simplifies the rules for deducting home office expenses. Revenue Procedure 2013-13 now provides a safe harbor option for deducting home office expenses resulting from qualified business use of the taxpayer’s home. Again, this is an option, so taxpayers who qualify and wish to deduct actual expenses related to a home office may still do so.
Under the safe harbor option, qualifying taxpayers may deduct $5 per square foot of qualifying home office space, up to 300 square feet. Taxpayers may choose to calculate the deduction according to the safe harbor rules, or they may choose to calculate the home office deduction using actual expenses. Taxpayers may make the choice each year, but once the election is made, the decision is irrevocable. Taxpayers who opt to take advantage of the simplified rules may not also take a deduction for depreciation on the business use portion of the home.
The safe harbor rules should result in significant time savings for taxpayers, and less record-keeping headaches. While the new rules provide for simplification, a quality many of us might agree is a step in the right direction, the qualifying business use factors for the deduction remain the same.
The qualifying business use factors are contained in Internal Revenue Code Section 280A. Among the factors, the home office must be used exclusively and on a regular basis as the taxpayer’s principal place of business; a place to meet with clients, patients or customers; or a separate structure used for the taxpayer’s trade or business. Management or administrative activities may qualify the home office as the principal place of business. If the taxpayer is an employee, then the home office must also be for the employer’s convenience.
For the foreseeable future, it appears that the trend toward telecommuting will continue to grow. The new safe harbor option for deducting home office expenses dovetails nicely with this expanding trend. Please consult your professional tax adviser to learn how the home office expense deduction may apply to your particular situation.
This article appeared in the February 23, 2014 issue of the Springfield News-Leader. It is available online here.
Kerri Tassin, J.D., CPA, is director of the master of accountancy program in the School of Accountancy at Missouri State University. Tassin also is the director of the Volunteer Income Tax Assistance program and the director of the Low Income Tax Clinic at MSU. Email: firstname.lastname@example.org.