New for the 2013 filing year: laws have been changed and there is now (finally) a much simpler way to calculate your deduction, as long as you still meet the requirements. Ask your professional tax preparer for details.
Another tax filing season has begun and along with it the usual advice from tax experts, financial publications, and pundits of many varieties. I am sooooo tired of hearing and reading the conventional “wisdom” offered to home-based business owners advising them to avoid the deduction for business use of their home.
Today’s culprit was the Independent Street blog from the Wall Street Journal digital network.
The usual reason given for this advice is that taking the home office deduction raises a red flag and increases the chance of an audit. To which I say, baloney! There is no evidence that this is true.
Statistics from the 2007 filing season show that for individual taxpayers (this is the category that includes people with home-based businesses who file Schedule C) audits are up 7 % overall to 1,384,563. That’s out of 134,421,400 returns filed for a rate of only 1.03%.
The greatest chances for audit (9.25%) were taxpayers with incomes over $1,000,000. Returns with incomes over 200,000 were audited at the rate of 2.87% and incomes over 100,000 at 1.77%. So if you want to reduce your chances for an audit, don’t make a million bucks!
I wholeheartedly believe that you should take all the tax deductions that you qualify for. And that’s the key. You must understand the regulations and must absolutely have the necessary documentation to prove your deductions.
If you do, there’s no reason to fear an audit.