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AICPA Urges IRS to Change Home Office Deduction 'Safe Harbor' Provision
Author: Scarinci Hollenbeck, LLC
Date: May 27, 2013
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Thousands of business owners run operations directly out of their residence each year, and many reduce their tax liabilities to the Internal Revenue Service by claiming a home office deduction.
While the write-off is perfectly legal and valid under federal tax law, home office deductions are also one of the most heavily scrutinized by IRS agents because there is a great deal of wiggle room to inflate expenses. As business owners can deduct equipment, rent, insurance premiums, and other related expenses, the IRS examines these returns closely for evidence of dishonesty.
In order to make the deductions less complex and easier to calculate, the agency recently proposed a new safe harbor method that would simplify the way business owners claim the deduction. Under the method, owners could deduct expenses at $5 per square foot for a maximum of 300 square feet of qualified home office space used. The maximum yearly deduction would be set at $1,500.
However, the American Institute of CPAs recently sent a letter to the IRS urging it to reconsider some of the safe harbor method proposals. In a letter to the agency, AICPA Tax Executive Committee chairman Jeffrey Porter asked the IRS to consider increasing the maximum deduction to between $2,000 and $3,000, according to Accounting Today.
The Institute also encourages the IRS to establish a cost-of-living adjustment to take inflation into account.
“We recommend that the IRS and Treasury re-evaluate and alter some of the details of their proposal to implement the safe harbor method,” Porter wrote, according to the news source. “For taxpayers who have been claiming (or may in the future claim) the home office deduction under the actual expense method, unanticipated administrative burdens have been created for the taxpayer, which should be considered when the IRS and Treasury draft future guidance and forms for both the safe harbor and actual methods of home office deductions.”
The IRS has not yet responded to these proposals.
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AICPA Urges IRS to Change Home Office Deduction 'Safe Harbor' Provision
Author: Scarinci Hollenbeck, LLC
Thousands of business owners run operations directly out of their residence each year, and many reduce their tax liabilities to the Internal Revenue Service by claiming a home office deduction.
While the write-off is perfectly legal and valid under federal tax law, home office deductions are also one of the most heavily scrutinized by IRS agents because there is a great deal of wiggle room to inflate expenses. As business owners can deduct equipment, rent, insurance premiums, and other related expenses, the IRS examines these returns closely for evidence of dishonesty.
In order to make the deductions less complex and easier to calculate, the agency recently proposed a new safe harbor method that would simplify the way business owners claim the deduction. Under the method, owners could deduct expenses at $5 per square foot for a maximum of 300 square feet of qualified home office space used. The maximum yearly deduction would be set at $1,500.
However, the American Institute of CPAs recently sent a letter to the IRS urging it to reconsider some of the safe harbor method proposals. In a letter to the agency, AICPA Tax Executive Committee chairman Jeffrey Porter asked the IRS to consider increasing the maximum deduction to between $2,000 and $3,000, according to Accounting Today.
The Institute also encourages the IRS to establish a cost-of-living adjustment to take inflation into account.
“We recommend that the IRS and Treasury re-evaluate and alter some of the details of their proposal to implement the safe harbor method,” Porter wrote, according to the news source. “For taxpayers who have been claiming (or may in the future claim) the home office deduction under the actual expense method, unanticipated administrative burdens have been created for the taxpayer, which should be considered when the IRS and Treasury draft future guidance and forms for both the safe harbor and actual methods of home office deductions.”
The IRS has not yet responded to these proposals.