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Fear Of IRS Audit Keeps Many Home-Office Users From Filing For Tax Deduction

Many home-office users are afraid to take the tax deduction due them under the IRS code.

The main reason, experts suggest, is because they are afraid of being audited by the IRS if they do.

Also, in many cases, the rules and requirements associated with taking the home-office deduction are complicated.  Another reason for failing to ask for the tax deduction.

But that shouldn't stop legitimate home office users.

While the IRS claims it doesn't seek out this particular deduction to start an audit, officials do say it is often misused.

Nearly 3.2 million returns claimed the home-office deduction for the 2005 tax year, the latest year for which statistics are available the IRS reports. That's up from nearly three million returns for 2004.

The IRS's taxpayer advocate, Nina Olson, believes many Americans who are eligible don't take the deduction.

In a report to Congress, the head of the IRS National Taxpayer Advocate's office said, "It is questionable whether most taxpayers who are eligible to take the deduction actually do so." 

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.

IRS officials won't disclose details of how they pick which returns to audit or what percentage of those who claim the home-office deduction are audited.

But the subject does appear to be a matter of concern. Eric Smith, an IRS spokesman, says that "underreporting of income" by small businesses is one of the highest areas of noncompliance and that "improper" home-office deductions contribute to underreporting by small businesses.

To help taxpayers sort through the rules, the IRS has issued a "fact sheet" on the subject.,,id=163079,00.html 

To bolster the IRS's position, several 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.

To find out more specific information on the home office deduction go to:
• IRS Publication 587 at,,id=177288,00.html
• IRS Fact sheet on home-office deduction reminders,,id=163079,00.html

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