The Simplified Option for the Home Office Deduction: Is it Right for You?

WASHINGTON, DC, (February 10, 2014) The IRS has announced a new, simplified method for determining the in-home office deduction that doesn’t require extensive record keeping, and a lot of people are looking forward to giving it a try. Sure, it’s easier than using the time-consuming “actual expense method” to determine the amount you can deduct for the business use of your home, but is it right for you?

Qualified business use of a portion of the home generally means:
• Exclusive and regular use as the main place where you conduct your business, or meet with customers, clients or patients.
• Regular use as a storage area for merchandise you sell, or product samples, if your home is the only place you conduct your business.
• Regular use in providing daycare services for children, the elderly or disabled persons.

The new optional deduction is a simple $5 per square foot of business use up to 300 square feet, for a maximum deduction of $1500. Period. If you choose to use the new simpler option, you can still deduct the full amount of your mortgage interest and property taxes as itemized deductions, without worrying about calculating the percentage based on the business use portion of the home. You won’t have to be concerned with tallying up the direct or indirect costs of utilities, repairs or maintenance expenses, either.

But, don’t be too quick to throw away the calculator until you determine if the simpler deduction is the best one for your situation. Cynthia Jeanguenat, EA, a federally licensed enrolled agent and tax specialist with Horizons Unlimited Tax and Business Services in Virginia Beach, VA is not touting the simplified method to her longtime clients. “We don’t want them to stop keeping track of their expenses! I compare this simplified office-in-home deduction to business vehicle expenses. If a taxpayer keeps good records, and uses their vehicle more than 50 percent for business, then it’s possible the actual vehicle expenses will exceed the standard mileage deduction; but if a taxpayer does not keep records for the maintenance, gas, repairs and insurance, but does record the business miles driven during the year, then they can take the standard cents-per-mile deduction. That may not be the better deduction, but if they don’t keep records, then that may be all they can qualify for.”

Jeanguenat feels the same about the office-in-home deduction of $1500. “If a taxpayer keeps good records, chances are they will get a better deduction using their percentage of actual expenses. If they keep few records, then the $5 per square foot may be their best choice.”

The simplified method took effect January 1, 2013. Taxpayers can elect to use the simplified method or standard method for any tax year. However, once you have elected a method for a tax year, you cannot later change to the other method for that same year. You may, however, use the simplified method for one taxable year and the standard method for a later taxable year. The simplified method doesn’t require you to file the form 8829 needed for the standard deduction. More information on the new home office rules is available on IRS.gov, search for Home Office FAQs.

About Enrolled Agents
Enrolled agents (EAs) are America’s tax experts. They are the only federally-licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. While attorneys and certified public accountants are also licensed, only enrolled agents specialize exclusively in taxes. Enrolled agents are required to complete many hours of continuing education each year to ensure they are up-to-date on the constantly changing tax code and must abide by a code of ethics.

Tax Predictions for 2014

WASHINGTON, DC, (February 19, 2014) With Senate Finance Committee Chairman Max Baucus (D-MT) moving on to become US Ambassador to China, last year’s expectations for tax reform are out the window. The National Association of Enrolled Agents (NAEA), the association that represents the federally licensed tax practitioners who hold the highest credential awarded by the IRS, has released some prognostications for 2014.

1) The budget cuts Congress imposed on the IRS mean bad news for taxpayers. Levels of service at IRS, which weren’t that great anyway, will continue to deteriorate for taxpayers seeking answers and for tax professionals seeking assistance in representing clients in audits and collection actions. As National Taxpayer Advocate Nina Olson said in her Annual Report to Congress, “If you are a tax professional trying to resolve a problem for a client, you have a 20-minute wait on the line inaptly named ‘Practitioner Priority Service.’”

2) Largely as a result of 1), the number of taxpayers paying to have their returns prepared will hit an all-time record high. Taxpayers are smart – they’re going to HIRE someone to spend the afternoon on hold with the IRS.

3) Identity theft losses will continue to grow: fraudulent filers will file early and walk away with other people’s refunds and phony emails from IRS will lure naïve taxpayers to sites where they will disclose personal and financial information. The agency will continue to siphon staff from other areas to assist affected taxpayers, yet any taxpayer hit with an ID theft related problem will face long delays in resolving the issue (see 1)).

4) Silver lining: the IRS back office will deliver the filing season. The agency will make its projected refund turnaround time (90 percent of refunds issued within 21 days of filing) and returns will be processed free of software troubles.

Meeting the Tax Deadline

How to Forge Ahead without the Documents You’ve Been Waiting For

Washington, DC (March 10, 2014)—Penalties for late filing of tax returns can be harsh, but what can you do if you haven’t received the information you need from your employer or others? If you are waiting for your Form W-2, mortgage interest statement, 1099 DIV or other documents that are necessary to complete your tax forms, it’s in your best interest to take action. IRS does not accept “failure to receive documents” as an excuse for failure to file.

 

If you haven’t received your W-2 form by January 31, it’s time to contact your employer. If it’s still not in your hands by February 14, you can turn to Uncle Sam for assistance. The IRS will be standing by to assist you at 800.829.1040 on that date and beyond. Before you make the call, be sure you have the following information at the ready: your Social Security number, dates of employment and your employer’s name, address and phone number. IRS will not only contact your employer, but it will also send you a Form 4852 (a substitute Form W-2) to fill out in case you don’t receive the Form W-2 in time to make the tax deadline.

 

In the old days, when the necessary tax documents didn’t arrive there was no choice but to call your financial institution and spend what seemed like an eternity waiting on hold to speak to a customer service representative about retrieving the missing document. The Internet has changed all that by allowing banks and mortgage lenders to post this information online. After you’ve established an online user name and password, most banks and mortgage lenders make the tax information you need available to you on their websites. Even if you accidentally tossed out some important tax documents along with the junk mail, you can easily access the numbers you need for your tax return.

 

If you find you just can’t get the documentation together in time, another option is filing an extension. This will delay your filing deadline until October 15, 2014. With the penalty for not filing a tax return or an extension a stiff five percent per month up to a maximum of 25 percent of the amount of tax due on the late-filed return, filing an extension is well worth the effort. Keep in mind that you’ll also need to file an extension for your state tax return.

 

Please note: taxpayers should not confuse the extra six months the extension provides for filing with a postponement on paying. You’ll still need to estimate the taxes you may owe and submit that amount prior to April 15, 2014 along with Form 4868. To avoid paying a penalty, you must pay at least 90 percent of what you estimate you owe, or 100 percent of your 2013 tax liability. If you don’t pay in full, you’ll wind up owing annual interest on the liability not covered.

 

Filing a tax return can be daunting and stressful without the advice and guidance of a tax expert. Enrolled agents are the only federally licensed tax practitioners with unlimited rights of representation before the IRS.