Business Use of Home Deduction for Home Based Businesses

February 13, 2013

Rizzo DiGiacco Hern and Baniewicz offer information on Rochester taxes each year as a way to help you plan your business and find more income for the next year. It is imperative for you to keep up with the changes in state and federal taxes to ensure you are receiving the most from your business expenses. As accountants, Rizzo DiGiacco Hern and Baniewicz offer numerous services including tax planning to help you prepare. For 2013, a new change has occurred which can affect home-based businesses.

This important change is outlined below to help you prepare.

Safe harbor has been around a while as a method to collecting, allocating, and calculating expenses for a business out of the home. It allows the use of “home deduction” meaning you can gain a deduction for part of your home expenses if you work in it. The form needed is a Section 280A of the IRC. The new method you and your Rochester accountant will need to follow started on January 1, 2013. The way this deduction worked before was cumbersome as it required you to maintain records and the accountants would need to collect the information from you.

Safe harbor is going to use a federal rate where the maximum square footage can be used to calculate the part of the home used for business. According to the new method, 300 square feet is the maximum amount at a prescribed rate of $5.00. The rate can change each year, but it is an election that the taxpayer will need to take each year.

When this method is used the taxpayer, you, will not be able to use actual expenses related to running your business in the home. If safe harbor is used your Rochester accountant will still itemize your deductions for any real estate taxes and mortgage interest you have paid. Safe harbor will not affect your personal home deductions, just the business side.

An additional change our Rochester accountant team has learned is depreciation effects. A home which depreciates cannot be written off in terms of the business. If the taxpayer did claim a home deduction in the year previous including depreciation then it means safe harbor depreciation deduction must be zero. For those who claimed actual expenses in the previous year then the depreciation deduction can be calculated and taken.

It is a lot to take in when you own a home and run a business from it. To ensure proper deductions are taken especially with all this talk of deductions, it is in your best interest to have someone to help you. We understand that you might be hesitant to hire an accountant, but you are also here looking for information. It means you have questions and want to ensure your business is running and earning the most possible. Having someone on your team with an accountant background, no matter who it is, is good business sense.

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RDG+Partners wants to be the primary advisor for motivated business owners. The firm is committed to providing boutique level accounting, tax and business consulting services to the Rochester, NY community.