Home office standard deduction

[jainen]

I missed this one! Rev. Proc. 2013-13

$5.00 per square foot. Period.

[Guest Taxed]

Also 300 sq. ft. so $1500 max right?

You can deduct property tax and mortgage interest on Sch A @ 100%.

[Jack from Ohio]

I missed this one! Rev. Proc. 2013-13

$5.00 per square foot. Period.

I find this revelation hard to believe....

[jainen]

>>I find this revelation hard to believe<<

Which revelation -- that the IRS has a safe harbor, that I missed it, or that I admit missing it?

[Jack from Ohio]

>>I find this revelation hard to believe<<

Which revelation -- that the IRS has a safe harbor, that I missed it, or that I admit missing it?

After you blasting my co-worker for not reading directions for Sch A line 10, 2 & 3 are almost unbelievable.

[jainen]

>>blasting my co-worker for not reading directions for Sch A line 10<<

The difference is that I looked up the current rules BEFORE filing, rather than waiting for ten clients to get audited.

[Jack from Ohio]

>>blasting my co-worker for not reading directions for Sch A line 10<<

The difference is that I looked up the current rules BEFORE filing, rather than waiting for ten clients to get audited.

I am certain that none of your clients have ever received a CP2000. I bow to your omniscience!

[jainen]

>>The difference is... <<

Of course, the main difference is that this new Revenue Procedure isn't actually in the instructions yet because it only applies to returns filed next year. The mortgage rule your office missed has been in the instructions since Adam and Eve first needed to buy a house.

And yes, I do audits. Just not with a canned response.

[Jack from Ohio]

CP2000 letters are NOT audits. Don't exaggerate your TRUE omniscience!!

[jainen]

>>CP2000 letters are NOT audits<<

You may not think so, but the IRS does. Perhaps you are confusing a letter audit with a math error letter. A math error can not result in a Notice of Deficiency (unless it is transferred to the examination unit), so a taxpayer does not have a right to take a math error letter to Appeals or Tax Court. But a CP2000 is very much an audit (IRS prefers the euphemism "examination"). It should always be considered dangerous.

[joanmcq]

I agree with jainen. It is an audit, just an automated one.

[mcb39]

I agree with jainen. It is an audit, just an automated one.

When my clients come to me with a CP2000 in hand and terror in their eyes; they certainly believe that it is an audit!

[jainen]

>>it is an audit! <<

Now that 1099s are electronically filed, it makes sense for the IRS to use computer letters for the initial phase of the audit, rather than waste government resources like they used to in what is usually a simple matter. The taxpayer still has ALL rights, including the right to meet in person with an office or field auditor, the right to representation and to provide evidence and witnesses, protection from repeated examination, relief from penalty and even interest when allowed by law, and of course appeals and judicial review with the burden of proof shifted to the IRS. Compare the CP2000 to the math error procedure (deceptively named because it can go far beyond arithmetic), in which there is none of that because the tax has already been assessed before the taxpayer is notified.

When I say a CP2000 is usually a simple matter, I mean the IRS is probably right because the proposed change is based solely on the mismatch. They are not questioning subjective things like intent or whether deductions are legitimate, just that income was actually received. Still, the 1099 might be wrong or already reported in a different place or whatever, so the taxpayer has the full range of responses available as in any other audit. If you don't like the vocabulary, Jack, call it whatever you want.

[Guest Taxed]

I looked at my clients who are taking the HO deduction and almost 99% of them are over $1500.

I wonder how many actual taxpayers will choose this method. We already have their sq footage etc. so it is just a matter of plugging their expenses.

[kcjenkins]

Next step will be to put those who do not use the standard under higher audit levels.

[JohnH]

Calculatog the actual difference might be a little tricky. Even someone who exceeds the $1,500 might still be better off using it. They would get the $1,500 PLUS still get the full deduction for mortgage interest and and taxes. Adjust for the loss of the excess deduction against S/E tax and you can arrive at a net difference. Then there's the likely reduction in audit potential...

[Eric]

I will likely choose this method due to laziness and chronic disorganization.

When you say "just a matter of plugging their expenses" it sounds so easy, but I'd rather eat a dozen earth worms than do bills and keep organized records.

I remember in school we used to get graded on our notebooks.. how complete they were, with our homework and tests and notes all organized and separated with tabbed sheets. It counted as a test grade, and it was done once a quarter. On the day it was due, I would shove whatever papers I had sticking out of my text book into a binder--a single test grade was not incentive enough.

This is why I don't burden a tax preparer with my return.

[kcjenkins]

LOL

[Guest Taxed]

Eric, as long as you can track your homeowners or fire insurance, utilities and repairs to your home it is a simple "plugging of the expenses" in our software. If you own your home from the property tax records we can get the info for depreciation.

It is really no big deal for us tax preparers to do it the old way.

[Eric]

Oh, I know. I don't have any trouble actually doing the return and plugging the numbers in, it's keeping track of the month to month electricity/heating/whatever that I'm no good at.

I've had a home office for something like 6 years now, and only claimed the deduction the first year. Even then I wasn't very thorough and left a lot of expenses out because I didn't want to deal with rounding up all of the information.

[Guest Taxed]

Does your utility company allow you to track your usage and bills online? If it does you can get a full year payment history all nicely printed. In my area both the Gas and Electric company allows that so I tell my client just run that report 1/1 t0 12/31 and bring it in.

[Lion EA]

I have clients that never give me utilities and other expenses. I'll run the numbers, but they may be good candidates for this new method. Also, that client who comes in new and can't/won't pull old records to get to adjusted cost basis for depreciation on his new home office in the home he purchased 30 years ago might be a candidate. Or, the client that has refused to take OIH since he expects to sell and thinks he'll lose his exclusion. Lots of possibilities.

[jainen]

I have clients that never give me utilities and other expenses. I'll run the numbers, but they may be good candidates for this new method. Also, that client who comes in new and can't/won't pull old records to get to adjusted cost basis for depreciation on his new home office in the home he purchased 30 years ago might be a candidate. Or, the client that has refused to take OIH since he expects to sell and thinks he'll lose his exclusion. Lots of possibilities.

I nominate this for Best Post of the Week! No fussing about how it's not enough deduction or bragging about what a great job the preparer already does. Just level-headed thinking about all the ways she might find to take advantage of a new safe harbor!

[Guest Taxed]

I second that.

[Lion EA]

Thanx, folks! Like Eric, my clients are busy and sometimes don't find it a good use of their time to keep organized records or even gather/keep documents at all that they need only once/year. I can show them how much money they might save, but they know the value of their time. Especially if they began with a different preparer and never took depreciation or want to tell me SALY for utilities/insurance/etc., this new safe harbor may be a bigger deduction for them. And, safer than estimates! SInce it's a year-by-year choice, you can file quickly now for someone new and give them a list and a year to gather information. Buys us time to train our clients in what to keep for next year.