Home Office
The Home Office Deduction for Your Business
The tax break has been expanded, but make sure you know the rules.
The Taxpayer Relief Act of 1997 included a modification of the IRS’s definition of “principal place of business” that will permit a larger number of taxpayers to qualify for the home-office deduction. For tax years beginning after 1998, the deduction will be available for home offices that are used for administrative or management activities related to the taxpayer’s business (for example, billing, maintaining records, ordering supplies, scheduling appointments, creating reports).
Home-based businesses, by their very nature, often have less structure. While many consider this to be an advantage, working at home can be a double-edged sword. The lack of structure tends to result in home-based workers putting in more hours than when they did not work at home. Having set office hours and “closing up” at the end of the day will help you balance business and personal matters.
Under the amended rules, a taxpayer is allowed to deduct expenses of a home office that is used for business purposes only if the space is used “exclusively” on a “regular basis” as:
The principal place of business carried on by the taxpayer,
A place for meeting with clients or customers in the ordinary course of business, or
A place for the taxpayer to perform administrative or management activities associated with the business, provided there is no other fixed location from which the taxpayer conducts a substantial amount of such administrative or management activities.
The exclusive-use test will be satisfied if a specific portion of the taxpayer’s home is used solely for business purposes or inventory storage. The regular-basis test is satisfied if the space is used on a continuing basis for business purposes (that is, incidental business use will not qualify.)
In determining the principal place of business (first provision under the definition of principal place of business, above), the IRS considers two factors: Does the taxpayer spend more business-related time in the home office than anywhere else? Are the most significant revenue-generating activities performed in the home office? Both of these factors must be considered when determining the principal place of business.
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To qualify for the home-office deduction, an employee must satisfy two additional criteria. First, the use of the home office must be for the convenience of the employer (for example, the employer does not provide a space for the employee to do his/her job). Second, the taxpayer does not rent all or part of the home to the employer. Employees who telecommute may be able to satisfy the requirements for the home-office deduction.
Home office expenses are classified into three categories:
relate only to the taxpayer’s business activity (for example, supplies, salaries). Expenditures for additional phone lines, long-distance calls, and optional phone services for the business may be deductible as direct business expenses. However, basic local telephone service charges (that is, monthly access charges) for the first phone line in the residence generally do not qualify for the deduction.
are expenditures that could be included as itemized deductions in the individual’s tax return (for example, mortgage interest, real estate taxes, and casualty losses).
would not be deductible if not for the home office deduction (for example, insurance, utilities, and depreciation).
Home office deductions are limited to the gross income from the business activity. Previously non-deductible expenses cannot create or increase a net loss from a business activity. However, a carryover to future years is available for unused, allowable home-office expenses.
Tax rules generally permit a 0,000 (married filing jointly) or 0,000 (single or married filing separately) exclusion on the gain from the sale of a primary residence. If part of the home is used for business purposes, the gain is divided into two parts — personal-use portion (the exclusion applies) and business-use portion (exclusion does not apply). For example, a taxpayer who qualifies for the exclusion, but has used 25 percent of the home for business purposes during the past five years, will only be able to apply the exclusion against 75 percent of any gain recognized on the sale of the home.
As with many tax laws there are exceptions to this rule. If you’d like a clearer picture of the size of the exclusion you qualify for, please call us.
The “office-in-home” tax deduction is valuable because it converts a portion of otherwise nondeductible expenses (for example, utilities and homeowners insurance) into a deduction. The treatment of home offices for income tax purposes is one of the more controversial provisions in the tax law.
An individual is not entitled to deduct any expenses of using his/her home for business purposes unless the space is used exclusively on a regular basis as the “principal place of business.” The IRS applies a 2-part test to determine if the home office is the principal place of business.
Do you spend more business-related time in your home office than anywhere else?
Are the most significant revenue-generating activities performed in your home office?
If the answer to either of these questions is no, the home office will not be considered the principal place of business, and the deduction will not be available.
Business use of the home by an employee must also be for the convenience of the employer. These rules make it very difficult for an employee to qualify for the deduction.
If these three tests are met, the deduction is limited to the gross income from the business activity. Furthermore, a deduction for home-office expenses cannot create or increase a net loss from the business. Any disallowed deduction may be carried over to future years.
Taxpayers taking a deduction for business use of their home must complete Form 8829. Some tax experts believe that taking a deduction for home-office expenses, whether clearly allowable or not, increases the likelihood of an IRS audit.
These are some thoughts to consider.
If you have a home office or are considering one, please call us. We’ll be happy help you take advantage of these deductions.
Laura is president and owner of 10 Key Solutions: Tax and Accounting Services. She has served in both the public and private sectors of accounting for over 25 years. Laura is an experienced and dedicated Accountant and Tax Preparer, with an attention for detail. Visit her blog for tax tips: http://www.10keysolutions.com/wordpress/.
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Qualifications for a Home Office Tax Deduction
The IRS has three specific qualifications for home office deductions for your LLC: you must use a specific area of your home regularly and exclusively as your primary place of business.
The first requirement is that your home office must be a specific area of your home. This does not mean that it must be a specific room; only that the area is identifiable and clear. The best way to accomplish this is to have natural dividers that enclose your home office area. For instance, hanging partitions or walls will help clearly define the space.
The second requirement is that the home office is used regularly and exclusively for business. This means that you must use your home office on a regular basis. In other words, you cannot just use your home office when you want to, but must actually make the home office a place of regular business. There is no set definition for what “regularly” means to the IRS, but your use of your office should be enough that it becomes integral to how you run your company.
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Additionally, the home office area of your home must be used exclusively for business. If your kids occassionally play in your home office, you may not use it for a deduction. If you occassionally check Facebook in the evenings in your home office, you may not use it for a deduction. If you pay personal bills in your home office, you may not use it for a deduction. The home office must be exclusively for business use only.
The last requirement that the home office be your primary place of business does not mean that the majority of your work must take place in the home office. Rather, the home office must be the place where you conduct many administrative activies connected to your business, such as record keeping, bill paying (business bills only!), etc. This requirement is also fulfilled if you regularly meet clients or customers in your home office.
Home office deductions are one of the most frequent causes of an IRS audit, and The LLC Company can help you make sure you take your LLC’s home office deduction correctly. If you can, you should also hire a competent business law attorney or accountant to review your home office and ensure you meet all of the IRS’s requirements. Failing to meet even a single requirement may disqualify you from taking the deduction. Incorrectly taking the deduction may subject you to fees, fines, penalties, and interest charges from the IRS.
Kyle Cavnett is a business law attorney and frequent contributor to The LLC Company, a free informational website designed specifically for limited liability company owners and those who are thinking about starting up an LLC.
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Working From Home: How to Maximize Your Time, Your Home Office and Keep Your Job
If you finally have the chance to work from a home office, you have made it into the new world of business. With this great privilege are a few hazards and some very unique responsibilities. Adherence to these key recommendations will actually have you more productive and more successful than any geo-specific office job, not to mention the time and money you’ll save by not commuting and eating lunch out. I highly recommend seclusion, leveraging technology to keep up appearances, time management, work banking and constant contact with your central offices to maintain your continued employment. The days punching a clock or seat in the butt working are a thing of the past for you.
With a 2 year old and a dog, finding the quiet time to hold a productive teleconference can be a challenge. I’m very proficient with my mute button on my iPhone, as I wait for the crew to come build my home office in my garage. If you, like me, don’t have the luxury of simply having a room you can convert in your house, you may find you’re doing quite a bit of business at Starbucks. I highly recommend it, except for the conference calls, unless you’d like to add a soundtrack of music and a cacophony of barista activity. The Wi-Fi is free and the drinks are caffeinated. It always amazes me, when I stop and look around, the variety of people who regularly conduct their business at the local coffee shop. You’ll see lawyers meeting clients, CEOs conducting interviews, students working on their classes, salespeople making cold calls and meeting clients, friends reconnecting, first dates and anything and anyone else you can think of. I wouldn’t be surprised to look up one day from my e-mails to see a cloak and dagger arms dealer conducting a transaction.
When it comes to seclusion, you really just need to find that quiet place where you won’t be disturbed and have the technology to work quietly and productively in that space. I’ve taken conference calls in my car and tethered with my iPhone. Some urban locations have communal office space you can rent, if your budget allows. These special offices are for individual business men and women who don’t need a large office space but do need all the amenities of a larger office. Renting your own space at one of these locations starts at about 0 a month with scalable services and goes up from there. Find the place that works best for you and leverage it to maintain your appearance.
There are many people at your company’s offices who hear the words “home office” and they immediately imagine you sleeping in and lounging around your house, maybe running a few errands then taking a nice afternoon siesta. You have to constantly counter that image. I learned this lesson a long time ago when I was working at a computer job. Everyone saw me at my desk working but had no idea what I really, really did. They thought I just surfed the internet all day. When the layoffs came, I was in the second wave. When I told my boss “That’s fine, but you need to know I have V, W, X, Y and Z deadlines.” They hired me back on the spot for whatever hourly rate I decided, and it was a very, very high rate I decided upon. Still, I could have avoided the layoff had my superiors known the extent of my work.
With my home-based job, I leverage technology to maintain my constantly busy appearance. In addition to my continuous availability via cell phone, I use Skype, instant messaging, e-mail and a shared folder program called Dropbox http://www.dropbox.com/ to constantly reach out to people and establish my “always on task” reputation. With the shared folder I am able to designate certain people at the company office who can access the folder. Every time I modify a file in there, people at the main offices have a little popup in their icon tray that designates the file has been changed or modified. It only appears for a second, but that second reinforces that I’m at my computer and working for the company. I also respond as instantly as possible to instant messages.
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People like to know you’re online. I am actually working much harder than I would be in the company’s office, where I may be chatting with someone about their weekend, attending a constant stream of office parties or grabbing my fifth coffee. My company’s offices are on the east coast and my home is on the west coast, so I make sure to be online by 5:30 AM every day. I don’t want people seeing me logging in at 11:00 AM their time when they’re logging out at 2:00 PM my time. That would look like I’m only working 6 hours a day. I do not want to leave that impression with them. If your office is in an international location, large chunks of overlap may not be possible, but you should still plan on popping online during their workday to establish your “always on task” appearance.
Consider also publishing your calendar and making it accessible to people at your company office, especially those signing your checks. Then, if you’re offline at a meeting with a client they’ll be able to see that. This will guard against them thinking you’re simply off to the beach. I update my published calendar in that shared folder so everyone can see. This is especially important to me because I live in sunny Southern California and my company’s offices are in snowy Michigan. It’s easy for their minds to wander to images of me sipping Margaritas on the beach. Appearance is everything and you need to make certain you appear busy, which you are—even though you may actually be at the beach meeting a client. This leads to effective time management, as well.
Though you want to let the company offices know how hard you are working, you also need to manage your time to include the things you need to accomplish in your personal life. Make sure you don’t end up working through your lunch break every day. Take the time to prepare and sit down and eat your sandwich away from your computer. Take your dog for a daily walk. Putter around in your garden for an hour. Use your lunch break to do your workout DVD and improve your health. Run that occasional errand to the grocery store or the dry cleaner. Knock off work early sometimes and cook dinner for the family. In short, define your start and stop times and try to not vary too much, but do take the occasional short offline time to maximize your time at home. If you don’t, you really will be living your work without escape. Your relationships with your home’s co-inhabitants will suffer greatly.
Use this opportunity to expand and enrich your life. I know, at least for me, my relationship with my 2-year old has grown considerably. We find the time to read together, play together and have fun together. In contrast, his daddy isn’t coming home at 6:30 in the evening, reeling with stress from work and commuter traffic and needing another hour to really decompress and be human again. That’s 7:30 in the evening before “daddy” appears again, and that’s also bed time. Also, the advantage of starting work at 5:30 AM means that I’m working a little before he wakes up and stopping around 3:00 PM. That gives us a nice chunk of time to be buddies and just have fun. Even if you don’t have children, managing your time effectively and leveraging it to enrich your life can lead to a better you, your being a better friend and your being happier and healthier.
Minimally, you need to stick to a few routines like showering and shaving. Sometimes you may need to also establish boundaries and guidelines with your significant other. Just because you are at home doesn’t mean you have the time to do all the chores (laundry, cooking, cleaning, etc.) everyday. While you may want to help out here and there, time permitting, in order to create a happier and healthier home, you are working. Act like it and you’ll have fewer problems. Use your time to your advantage to maximize your productivity.
Some people see work banking as a kind of devious practice, but it’s your only defense against appearing to do spurts of work and then nothing. If you’re working close to quitting time on an e-mail you plan to send or a file and it isn’t immediately due, you might want to hold off on sending it until sometime the next day or on the weekend. It isn’t time sensitive, but those at the company office see a steady stream of work from you. That’s productivity not deviousness. If you were at the company offices, you prioritize your work and “mull” over some things before sending them on, why would your home office be any different.
Now, I have known some government workers who had individual cases they would delay submitting from time-to-time. They might have intensively worked for several hours straight on them and they know if they turned them all in at 5:00 PM they’d have a bunch of new cases in the morning. You know your work limits, so it’s important that your “always on task” reputation doesn’t find you working every single moment of every single day. Bank and stage your work to reflect consistency in your productivity, not one large body then “radio silence” for several days. That silent period will be interpreted as you’re not working and that spurt of massive work will signal you’re way ahead of everything and ready to take on even larger loads without a breath in-between. If you’re going to die at home make it in your sleep not in your home office.
In addition to maintaining your appearance as always available, you’ll want to seek opportunities to reach into the main offices and participate. Don’t be a pest just calling to chat or bother people with busy work or things you should already know. Remember, organizations that have meetings for the sake of meeting and planning other meetings are not dynamic enough to be successful. Schedule your teleconference attendance at critical meetings. If the company office is equipped with a nice conference room, you might Skype in to let them see your smiling face. Make sure you’re not dressed in your scraggily concert t-shirt and bathrobe with uncombed hair, but you don’t have to be in a suit either. Business casual dress will do. Also, make sure your background is appropriate and not bustling with activity more exciting than the meeting content.
If video conferencing isn’t a reality, make sure you’re keeping in phone contact and e-mail contact. You might even consider sending a pizza or cupcake delivery to the retirement party you obviously can’t attend. It keeps your face in their minds. While the guy who slips off the company radar and still receives checks but does not work is good stuff for comedic movies, it’s not an actual reality. Thinking it is could lead to you slipping off the company radar and into the unemployment office.
The key here is to not be a pest, a busy work assigner or incompetent with your inquiries. Maximize your time, keep it short and focused. Use your touch points with your corporate offices to get things done productively. A two minute phone chat to clarify or go over something is always a better use of time than a 3 hour conference.
As the most productive employee of your own home office, you’re joining a large group of telecommuters, road warriors and entrepreneurs. As gas prices skyrocket, the cost of office space continues to rise and company’s continue to upgrade their technologies and dispel the myth that “butt in the seat” is the most productive type of employee, you’ll be joined by an ever increasing number of comrades. Set a good example with these key recommendations. Celebrate that you are free from office slacking and office gossip, but manage your appearance, time, work and communications to guard against the jealousy of others. Your productivity and success will show others that today’s worker can truly work from anywhere and be more efficient than those cubicle, desk jockeys. Roll out of bed, hit start on your coffee maker, fire up your computer and go get them.
Shawn Mann is playing the role of a writer and communicator in a complex organization blending military, marketing, technology and higher education. He resides with his wife, son and dog and cat in sunny Southern California.
Comfortable and Stylish Home Office Furniture
Nowadays with the massive increase in technologies, people are getting more and more opportunities to gain employment or for setting up a new business. They can add to their income by working for themselves from home at their own convenient time. plays a great role in converting a section of your home into a pleasing office space.
To make work effective, ensure that you are picking up furniture that is comfortable and stylish at the same time. It should be appealing and encourage you to work efficiently. A dull and gloomy room with drab furniture cannot inspire people to work properly and it would also fail to impress any clients that might be visiting the office. But when selecting home office furniture, do not compromise on the durability of the furniture for the office. Keeping these factors in mind and choose the home office furniture that matches your taste and the overall appearance of your office as well.
Another thing to consider with home office furniture is the appearance that you want to give the room. Ideally, you will want it to match the rest of the home. So if you have a contemporary style home, you should purchase contemporary office furniture. If you have a modern looking home then you should purchase modern office furniture. If you don’t stick to the theme then the office in your home will end up looking out of place. No matter what your style preferences, you will always be able to find something to suit your needs.
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There should be executive desks which would be an important part of your business as it would be the place where all the important dealings are made. So make sure the desk is placed at the center of the room and is designed in a fashion that would complement the other furniture. With files lying around, the home workplace can be hazardous to your business. Hence, it is feasible to have a heavy duty cabinet which would safely store the home work place essentials. It is a very important feature of your office, so make sure it combines both factors of looks and functionality.
One of the most important things to keep in mind when you are purchasing home office furniture is to make sure you get a comfortable office chair. You’ll spend a lot of time in the office in your chair. It should feel good, it should be adjustable, and it should roll well too. The chair is one of the key elements in a set of home office furniture. Make sure that the chair has an adjustable height, rolls on carpeting and hard floors, and most importantly-is comfortable. You’ll be spending a lot of time in the chair, so it might as well be comfy.
Choosing just the right for your home office can be a complicated task but a very important task. Having the right furniture that is comfortable, easy to work at and appealing to the eye will help to increase the productivity of your staff. Also, when you are looking to impress your clients and make a good for impression, it is good to have appealing furniture in your office.
As part of the progressive work culture, one can work from the comfort of one’s home. Installing modular home office furniture could foster a creative and very personal atmosphere promoting efficiency and productivity.
Spacify.com has the best quality of home office furniture at affordable prices. It will surely beautify your Office Furniture and will give you the right ambience you have always wanted.