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Remote office? Can you claim a home office deduction?

With expanded access to broadband and wireless internet connections, more employees work remotely from a home office. Running a start-up from a home office is also common and many business owners keep their main office in their home.

Last year, the U.S. Internal Revenue Service offered a simplified option for the home office deduction.

This post will explain how to calculate the deduction under the simplified approach. In addition, we will discuss basic requirements. Failure to meet the requirements could prompt an IRS tax audit.

Calculating the deduction is now much easier. You simply figure out the square footage of your home office and multiply by $5. The maximum deduction is 300 square feet or $1,500.

All home-related itemized deductions, such as property taxes and mortgage interest stay on your Schedule A. You also do not need to keep track of depreciation for recapture when you sell your home.

Your home office needs to be a separate area that you use specifically for business. You must be able to define the square footage, as well. The IRS might question whether you used your home office exclusively for business purposes and whether it really was your principal place of business.

The regular method of claiming the home office deduction is still available, but requires a longer 43-line form. A taxpayer must track expenses and keep records related to operating the home office. Apportioning expenses, such as mortgage interest is also required. A depreciation deduction is available, but recaptured at the sale of the home. One benefit that you get with the regular method, but do not with the simplified method, is the carry over of unused portions of the deduction to future years.

Make sure you keep records to support claimed deductions. Frequently the home office deduction is not claimed properly, so the agency closely scrutinizes this deduction.

Source: CPA Practice Advisor, "Is the New Flat Rate Home Office Deduction Right for Your Clients?" Eva Rosenberg, June 26, 2014

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