Yeah, about that simplified home office deduction in 2014

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I mentioned the simplified home office deduction for 2014 in a recent “Freelance taxes roundup.” On the surface, it seemed like a great idea and appeared to save a lot of time and record keeping. I’m a freelancer, not an accountant, after all. I was happy, if not necessarily doing the Dougie.

Well, it turns out that simplified doesn’t equal maximized, even for an English major whose last math class was college freshman calculus. When I crunched the numbers over the weekend, it turns out that the easy equation—$5 per square foot at a maximum of 300 square feet, i.e., capped at $1500—wasn’t as beneficial to my tax deduction as it was to do it the old fashioned way.

This Forbes article published on Monday, “The Home Office Deduction: What You Need To Know,” does a good job of outlining the basics of what you need to do to play by the rules. But it also goes into the details of the calculation and the advantages that you’re missing if you choose to take the simplified version. The decision depends on the size of your home, the percentage of the space your home office occupies, and the expenses you incurred for the home in general as well as specific to your office. Do you have high utility costs? Is your office larger than 300 square feet? Did you do a renovation? You could be leaving money on the table.

If you are a homeowner, you also need to consider this:

Another thing you lose by taking the simplified deduction, whether you are an employee or self-employed, is the right to depreciate the portion of your home used in a trade or business. If you own your own home, this is another reason you might not want to take the simplified deduction.

To start, look at your 2012 taxes: Has your home office deduction historically been more than $1500, perhaps significantly so? You’ll obviously want to consult a tax specialist or CPA to help you decide if you’re not sure, or if the home office deduction numbers aren’t completely one-sided (making it a moot point). Note also that you can change the way you calculate your deduction each year; it’s not like the mileage vs. actual cost decision you need to make with your car, which is permanent.

As for me, I’m filing Form 8829, “Expenses for Business Use of Your Home,” same as it ever was. No time saved, but plenty of money to make it worth it for this freelancer.

In the comments: Are you taking the simplified home office deduction in 2014, or sticking with the old system?

Photo courtesy of YM.

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  1. Anonymous says

    Why do I get the feeling that the IRS isn’t necessarily looking out for our best interests with this?

  2. says

    @Anonymous, according to the IRS (via an article that just came out on, the average deduction has run around $3,000. So, yes, the tax authorities potentially have a 50% gain.

  3. says

    Yes, John–the math is definitely different if you’re renting, and the simplified computation is definitely, errr, less taxing. Thanks for commenting!