“Safe Harbor” for Home Office Expenses
Tax season may have just ended, but that doesn’t mean preparation should take a vacation. Here’s news that every fitness professional who runs his or her business from a home office or uses a home office for management chores will be happy to learn: The Internal Revenue Service has announced that beginning with the 2013 tax year, a new “safe harbor” will allow qualified taxpayers to deduct as much as $1,500 in home office expenses—while reducing the administrative, recordkeeping and compliance burdens of claiming this deduction. The IRS’s new, simplified option will permit any fitness and wellness professional—whether worker, employee of his or her own business, or owner of a home-based fitness business—to use a flat, no-questions-asked deduction of $5 per square foot of the part of the residence that is used for business purposes, not to exceed 300 square feet, for a maximum deduction of $1,500.
In general, home office expenses are deductible if part of the home is used regularly and exclusively (1) as a principal place of business, (2) as a place to meet or deal with customers or clients in the ordinary course of business or (3)—in the case of a separate structure that is not attached to the dwelling unit—in connection with the taxpayer’s trade or business. These requirements still apply under the new option.
An additional benefit of using the safe harbor is that claiming a home office deduction will likely be less of an audit flag, which should come as good news to anyone who has ever attempted to claim this deduction. Since the issues that often arise in calculating, allocating and substantiating deductible home office expenses will be resolved with the safe harbor’s formula, there are fewer issues to prompt an IRS examination. But reduced audit risk or not, is the safe harbor the most rewarding path?