New Option for the Home Office Deduction Starting With Tax Year 2013

Claiming the home-office deduction is about to get easier.  The IRS announced last week it is introducing a simplified option for claiming the home office deduction, which owners of home-based businesses and some other home-based workers use to write off the expense of using part of their residence for work. 

In the past many have passed up the deduction because the calculations required are so complicated. 

Under the new rules business owners will be able to claim $5 a square foot for up to 300 feet or a maximum deduction of $1,500.  The new deduction will be available for 2013 tax returns and comes with a much simpler form (I know ... we will believe it when we see it).    

The current method requires taxpayers to fill out the 43 line Form 8829 which, unless you are one of the nerds on the Big Bang Theory, can be overwhelming. 

The IRS says you can stick with the old form and in many cases that will give you a bigger deduction. 

The IRS says nearly 3.4 million taxpayers claimed the home-office deduction in 2010 but the National Association of the Self-Employed found that nearly 60% of the business owners who used home offices didn’t file for the deduction so the change may benefit many business owners.

IRS Delays Tax Season Until January 30

The Internal Revenue Service announced yesterday that it has delayed the opening day of the 2013 tax filing season for the 2012 individual tax returns to January 30, more than a week after the initially planned start date of January 22.  It could be worse however for certain taxpayers.

The reason for the delay is the very late passage of the fiscal cliff legislation by Congress.  The Internal Revenue Service needs the extra time to update their forms and complete the programming and testing of its computer system. 

If you claim residential energy credits, depreciation of property or general business credits it may be until late February or into March before the IRS finishes the extensive forms and processing system changes. An exact date will be announced later.  The depreciation of property could affect those individuals with Schedule C Sole Proprietor or Schedule E rental property.

This delay goes for both E-filing and paper returns. The IRS says this delay does not affect Corporate or Partnership tax returns.

Fiscal Cliff Changes

Yes, your taxes are going up but it could have been much worse.  The average American's household tax will go up about $25 a week but without the changes it could have been as high as $67 a week if Congress did nothing.

The biggest change is the temporary reduction in social security tax from 2011 & 2012 was not extended.  This mean the 2% cut in the payroll taxes that wage earners have enjoyed over the past two years ratchets back to its normal 6.2 level on the first $113,700 of wages or self-employment taxes.  You no doubt already discovered this in your first pay check in 2013.

The highest wage earners will pay higher taxes.  Their marginal income tax rates will rise from 35% to 39.6% on income over $400,000.  In addition their tax rate on dividends and capital gains will increase from 15% to 20% which will not make Mitt Romney happy.

The new tax bill also restores caps on itemized deductions and phase outs on those individuals making more than $250,000 ($300,000 for couples).  Mortgage deductions will be capped for individuals making more than $250,000 and couples making in excess of $300,000.

The Alternative Minimum Tax "patch" which adjusted the Alternative Minimum tax for inflation was also passed.  Previously it had to be passed each year but now it happens automatically.  This actually affects the 2012 taxes as well.

It appears that most of the items that were set to expire such as the Child Credit, Earned Income Credit, and the College Tuition Tax Credits have all been extended another 5 years to when there very well could be another fiscal cliff.

And lastly since it took Congress so long to pass these changes (mainly the Alternative Minimum Tax) it's going to take a couple of weeks for the IRS and the Tax Software people to update the changes and be able to process the 2012 tax returns particularly for those that itemize.  You early tax filers may have to wait an extra couple weeks for tax season to begin.  Also the IRS is not promising their rapid refunds in the 2 week window we have experienced the last few years.