"Electing Safe Harbor Method for Home
Office Deduction
Beginning in 2013, comes a new Safe Harbor method for determining the home office deduction. This new provision simplified the calculation, but it does not change the need to satisfy all of the eligibility requirements. It may also reduce the audit risk, since the deduction has a maximum deduction amount of $1,500.
Most taxpayers eligible for home expense deductions for a qualified business use under IRS Section280 are eligible for the optional Safe Harbor method. This allows individual taxpayers who use their homes for qualified business use, storage of inventory or day care services, subject to other limitations under the tax code. We advise taxpayers to review the provisions under IRS Section 280A as well as subsections 280A,(c)(1),(2),(3),(4),(5), as well as Rev. Proc 2013-13 for the Safe Harbor election.
The use of the Safe Harbor method does have drawbacks. Since it is an alternative to calculating actual expenses, some costs relating to qualified business use will no longer be deductible on Schedule C in the tax year elected. In addition, any carryover deductions from prior years are deferred into a year when the election is not made.
We advise taxpayers to evaluate the restrictions before making the decision to elect the Safe Harbor method. Since the safe harbor is an irreversible election for that tax year, be sure of your decision. An amended return cannot be filed to change your determination.
If you have any questions about the Safe Harbor method, please call our office at 516-877-1900. We look forward to hearing from you."
Many small business owners take a
deduction for the qualified business use of their home under IRS Section 280(A). Before 2013,
eligible taxpayers determined the deduction by calculating, allocating and
substantiating actual home expenses related to a qualified business use. For
many, the administration, record-keeping and compliance was a burden.
Beginning in 2013, comes a new Safe Harbor method for determining the home office deduction. This new provision simplified the calculation, but it does not change the need to satisfy all of the eligibility requirements. It may also reduce the audit risk, since the deduction has a maximum deduction amount of $1,500.
Most taxpayers eligible for home expense deductions for a qualified business use under IRS Section280 are eligible for the optional Safe Harbor method. This allows individual taxpayers who use their homes for qualified business use, storage of inventory or day care services, subject to other limitations under the tax code. We advise taxpayers to review the provisions under IRS Section 280A as well as subsections 280A,(c)(1),(2),(3),(4),(5), as well as Rev. Proc 2013-13 for the Safe Harbor election.
The use of the Safe Harbor method does have drawbacks. Since it is an alternative to calculating actual expenses, some costs relating to qualified business use will no longer be deductible on Schedule C in the tax year elected. In addition, any carryover deductions from prior years are deferred into a year when the election is not made.
We advise taxpayers to evaluate the restrictions before making the decision to elect the Safe Harbor method. Since the safe harbor is an irreversible election for that tax year, be sure of your decision. An amended return cannot be filed to change your determination.
If you have any questions about the Safe Harbor method, please call our office at 516-877-1900. We look forward to hearing from you."
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