To take the deduction, the IRS requires the home-office to be your principal place of business and it must be used exclusively and on a regular basis. According to the S.B.A., just over half of the country’s 28 million small businesses are based in a home, but only 3.4 million taxpayers claimed this deduction. The most common reason for not taking the deduction is the complexity of the paperwork (i.e., IRS Form 8829) taxpayers must file. A second reason for not taking the deduction is fear of an IRS audit, which may also be attributed to the form’s complexity.
There is a simplified, “safe-harbor” method of calculating your home-office deduction that is available. Simply, you are allowed to deduct a flat $5 per square foot of dedicated office space in your home, up to a maximum of 300 square feet; thus yielding a $1,500 maximum deduction. Under this alternative, a taxpayer can forgo all the information-gathering and avoid the 43-line tax form previously required.
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