Interesting article in the Wall Street Journal: Fear of the Home-Office Deduction: Many Forgo Claim Amid Audit Worries and Complex Rules, by Tom Herman:
Even as more Americans work from home, many of them appear to be missing out on valuable home-office tax deductions, an IRS official says. "It is questionable whether most taxpayers who are eligible to take the deduction actually do so," IRS National Taxpayer Advocate Nina Olson said in a report to Congress last week. She urged lawmakers to offer taxpayers a simpler, optional method of calculating the home-office deduction.
Among the reasons people don’t take such deductions, she says, are the law’s complexity and its record-keeping requirements. Another reason: fear of being audited. "Some clients of this firm who are eligible don’t take it," even after being told about the tax savings, says David A. Lifson, a CPA and partner at Hays & Co. in New York City and president of the New York State Society of Certified Public Accountants. "Many people believe the home-office deduction is a red flag" for IRS agents. …
[S]everal lawyers and other advisers say taxpayer fears of getting audited are exaggerated. They say more people with legitimate home offices should consider claiming the home-office deduction, which would enable them to deduct the business portion of real-estate taxes, mortgage interest, rent, utilities, insurance and other items. They also say it’s clear from IRS data that most people who claim the home-office deduction don’t get audited. Nearly 3.2 million returns claimed the home-office deduction for the 2005 tax year, the latest year for which statistics are available, says Mr. Smith of the IRS. That’s up from nearly three million returns for 2004.
