01/16/2013 11:32 am ET

Home Office Tax Deductions Just Got A Lot Easier, The IRS Announced


For millions of small-business owners and freelancers who work from home, it just got easier to get a tax break for home office space.

Under a new guideline announced this week by the Internal Revenue Service, small-business owners will have one simple rule to follow starting on their 2013 tax returns: They can write off $5 per square foot of home office space on up to 300 square feet, for a total maximum deduction of $1,500.

In the past, business owners have had to go through a confusing set of calculations on a 43-line form to determine the exact cost per square foot of their homes that qualified for a deduction. Nearly 3.4 million taxpayers claimed the home office deduction in 2010, according to the IRS. But small-business experts say that even more business owners could be taking the deduction -- and hopefully will now that the process is streamlined.

"It will provide our members some relief next tax season by allowing them to take an important deduction they long have qualified for but often forsake due to past complexity,” said Kristie Arslan, president of the National Association for the Self-Employed (NASE), a national association for self-employed and micro-businesses. NASE lobbied the IRS to make the change, and was successful this year. The new rule is expected to save taxpayers more than 1.6 million hours per year in tax preparation time by using this simpler calculation method, the IRS said.

More than half of small businesses are home-based, and have home office space that qualifies for the deduction, according to the White House blog. The number of taxpayers who qualify for the deduction could grow in the future as technology makes telecommuting more feasible.

But just doing a little paperwork from home does not mean your dining room table qualifies as a deduction. The IRS guidelines state you must regularly use part of your home exclusively for business purposes, like using a spare bedroom to run an online business or the playroom for daycare. The deduction also allows workers who use their home to do work for their employer -- say meeting clients on a regular basis -- to take a home office deduction.