Tax Tip: Home Office Deduction Safe Harbor

In a newly issued Revenue Procedure 2013-13, effective for tax years starting on or after 1/1/2013, the IRS has created a safe harbor for the home office deduction calculation. The safe harbor is $5 times the home office square footage, for a maximum of $1,500. The safe harbor is in lieu of the substantiation of actual expenses otherwise required under IRC 280A.

If the safe harbor is used:

• The safe harbor is the total deduction. No depreciation or any other costs can be taken in addition to the safe harbor amount.
• The taxpayer can take 100% of the mortgage interest and property taxes as an itemized deduction on schedule A. No reduction of these expenses are required.
• Disallowed home office expenses that were carried over from prior years cannot be used in the year the safe harbor is taken. These amounts continue to be carried over and are usable in a year in which actual (substantiated) expenses are claimed.
• The taxpayer can elect safe harbor or substantiated expenses year-by-year.

Fixed Asset Acquisition Planning for 2012

Construction Contractors that are planning to acquire fixed assets should consider doing so before the end of 2012.  After 2012, two significant tax benefits will diminish or be completely eliminated.

Section 179 depreciation

For tax years beginning in 2012 taxpayers may expense, in lieu of capitalizing and depreciating, up to $139,000 of qualified property, generally tangible personal property and off the shelf computer software.  The ability to expense eligible property phases out dollar for dollar when qualified acquisitions exceed $560,000.  These limitations are already a significant reduction from those allowed in 2011 when the maximum expensing limitation was $500,000 with the acquisition ceiling set at $2,000,000.   Absent any new legislation in this area, the limitations drop significantly again for tax years beginning in 2013, when the maximum expensing allowed will be only $25,000 with the phase out beginning at $125,000.  Furthermore, off the shelf computer software is eliminated as eligible property for tax years beginning in 2013. Continue reading »

Tax Incentives for Contractors – Fixed Asset Acquisitions

The recently enacted included a wide-ranging assortment of tax changes generally affecting business. Two of the most significant changes allow for faster cost recovery of business property.  These consisted of enhanced expensing under Section 179 and an extension of 50% bonus depreciation. The bonus depreciation provisions, however, quickly became outdated with the enactment of the 2010 Tax Relief Act, where the bonus depreciation provisions became even more taxpayer friendly.     Continue reading »