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Under the original home office deduction method, which the IRS is now calling the regular option, you keep track of direct and indirect home-related costs that affect your home office.Direct costs include, for example, new lighting for your home office. Veteran contributing editor Kay Bell writes Bankrate's tax stories from her Austin, Texas, home.
We'll help you understand the extremely complicated tax code in easy-to-understand language. Our tax expert Kay Bell provides resourceful tips and advice to help you stay prepared for filing.
Indirect costs are the percentage of your home's utilities, repairs, insurance and the like that are attributable to your home office. The final calculation on that document then is transferred to your Schedule C and filed with your Form 1040 to report your business' profit or loss.Less paperwork, but limited deductionIf, however, you choose to use the simplified home office deduction method, which first was available for 2013 filings, there's no need for Form 8829.

This six-line page (with a few sublines for some entries) basically allows you to deduct the square footage of your home office at $5 per square foot up to a maximum $1,500.If your workspace is less than the maximum 300-square-foot area covered under the simplified method, your deduction will be less.
You use a den or spare bedroom at home as your home office and it measures 18 feet by 15 feet for a total of 270 square feet. Multiply that by $5 for a total simplified home office tax deduction of $1,350.Since your home's mortgage interest and property taxes are not used proportionally for the simplified home office deduction, they are fully deductible as usual on your Schedule A.
Tax law now calls for a reduction in overall itemized deductions for higher-income taxpayers. By claiming the simplified home office deduction, all of your property taxes will be on Schedule A. More income means you'll owe more on Schedule SE, which is the self-employed worker's equivalent of the Social Security and Medicare taxes deducted via payroll taxes from wage earners' paychecks.And larger real estate taxes on Schedule A could mean a bigger tax bill if you are subject to the alternative minimum tax.

You can decide each tax year which method to use.Remember, however, that if you use the simplified method for one year and the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate depreciation table. You'll need them to help you determine which deduction method will save you more tax money.The bottom line is that while the simplified home office deduction is easier for some filers, it's not for every home worker.

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