Home Office Questions

From IRS publication 587.

Several previous threads in the past 2 years have delved into this topic. Might find it interesting to search for them and absorb the wisdom. FW search function's not great, so go to a search engine and type in "fatwallet.com" and "xx yy zz" (whatever search terms you think will return the threads on topics that you are looking for).

"Regular and Exclusive" is taken very seriously by the IRS.

One of my favorite cases involves a taxpayer who had a home office which was his sole office that he (thought) he used exclusively for work. He submitted documentation when he got audited, including pictures of the office.

The IRS disallowed the deduction because there was a cat bed in the corner. The cat's use of the office means it wasn't exclusively used for business purposes.

oopsz said: The IRS disallowed the deduction because there was a cat bed in the corner. The cat's use of the office means it wasn't exclusively used for business purposes.Unless it's a cat bed and breakfast.

mmyk72 said: I think I can make the office exclusive for work. The tricky part is internet cost. Because for sure I'll use it both for personal and work.

In that case, can I deduct the % used for work? Or is it totally not deductible.You can prorate the internet cost based on your business usage.

cheezedawg said: From IRS publication 587.One of the key questions in the flow chart is if working at home is a convenience for the employer (meaning they don't need to provide office space for you) or for the employee (telecommuting to save on travel time).

thanks. I think I can swing it either way because
My current office is being closed and I can ask my employer to not provide me with a permanent office space at all. This saves cost for them. This is also cheaper than relocating to an office in another state.

I'm sorry amigo, but if you say: "I'm not self-employed, I work for a company and get a paycheck. So I'm not sure if I get to benefit from tax deduction related to the cost of homeoffice. " it's not going to fly, and why should it?
You are just a guy working for someone else. No matter if you have to drive to work or stay at home. YOU ARE NOT A BUSINESS OWNER WHO COULD take advantage of this and some other deductions.

Start something on your own, and keep half the house for business. as long as it's ligit - you'll be fine.

W-2 employees take office in home on Schedule A Employee Business Expenses which is subject to a 2% AGI floor before deductible so OP may not even benefit from it.

turtlebug said: home office = IRS audit magnet
True, but never be afraid to take deductions if they are legit. The IRS strategy is to scare people.

mmyk72 said: My current office is being closed and I can ask my employer to not provide me with a permanent office space at all. This saves cost for them. This is also cheaper than relocating to an office in another state.Ask your employer for a stipend for your home office. My employer will reimburse up to $500 a year for high speed internet, phone lines, etc.

Don't buy a bigger house with the expectation that you will make up the difference with a tax deduction.

HumDoHamaraDo said: turtlebug said: home office = IRS audit magnetTrue, but never be afraid to take deductions if they are legit. The IRS strategy is to scare people.Um, it's not the IRS posting here telling people to be cautious about taking a home office deduction.

Can you link to something on their website that tries to scare people out of taking legitimate home office deductions?

chimeer said: Xnarg said: HumDoHamaraDo said: turtlebug said: home office = IRS audit magnetTrue, but never be afraid to take deductions if they are legit. The IRS strategy is to scare people.Um, it's not the IRS posting here telling people to be cautious about taking a home office deduction.

Can you link to something on their website that tries to scare people out of taking legitimate home office deductions?

I think the exclusive use tends to scare people a bit and makes taking the deduction a bit of a gamble.

A hypothetical example would be Joe he works from home as a free lance programmer. He decides to rent an apartment with an extra bedroom that he can use as a home office the extra bedroom costs him an extra $200/month. Now he typically works out of his home office 10 to 12 hours day, but occasionally personal email goes to his business email address and so he reads said emails in his home office or occasionally studies for some classes he is taking at the local community college in his home office. Either of those things would mean the home office wasn't exclusive even though if Joe would have done the same things from a more traditional office there wouldn't have been a problem. So he is left with the choice of lying on his tax return (never a good idea), renting a separate office for $600/month (costing both him and tax payers more) or not taking the deduction.

The exclusive use provision makes the home office deduction very hard to defend imo. Things that may not be a problem in a traditional office setting become problematic from a tax perspective in a home office situation.The exclusive use thing is set by Congress, and IMNHO it's a legitimate requirement to minimize abuse - which we all should know would be extensive.

People are right to be scared about claiming a home office when they don't really have one, just the same way they should be scared about claiming dependents they don't really have.

On the flip side of this, I have yet to learn of any businesses being required to list on employee W-2s the value of "personal usage of internet and telephone services."

I'd be surprised if a home office deduction were denied because once in a while a personal phone call came in or the worker occassionally thought about what he was going to have for dinner.

I am sure "dog bowl under the desk" stories have more details to them - surely IRS aren't complete assholes to do that in a completely legitimate home office settings. I dare to guess that the taxpayer had no real business, was claiming half of their house as an office in order to generate business losses to offset their W2 income. IRS used a loophole right back at them.

If you have a legitimate income-generating business with your home the only place of business I am sure the IRS would not disallow deductions because you like to pet your dog while on the phone with clients.

I bet every April on it with my Schedule SE and self-employment tax I pay.

Xnarg said: Battleshipnote said: mmyk72 said: thanks. I think I can swing it either way because
My current office is being closed and I can ask my employer to not provide me with a permanent office space at all. This saves cost for them. This is also cheaper than relocating to an office in another state.Great, one more business venture I as a tax payer will be funding...Huh? If his employer provided office space and support for him, you would have been "funding" that too via the company's expense deductions. A home office may very well cost taxpayers the same or less.

Sure, ifthe company doesnt have the extra space that they will not deduct, more likely they will both take the deduction.

Battleshipnote said: Xnarg said: Battleshipnote said: mmyk72 said: thanks. I think I can swing it either way because
My current office is being closed and I can ask my employer to not provide me with a permanent office space at all. This saves cost for them. This is also cheaper than relocating to an office in another state.Great, one more business venture I as a tax payer will be funding...Huh? If his employer provided office space and support for him, you would have been "funding" that too via the company's expense deductions. A home office may very well cost taxpayers the same or less.Sure, ifthe company doesnt have the extra space that they will not deduct, more likely they will both take the deduction.If it's just one person and a unique situation, that may be somewhat true, but I have indeed seen companies downsize their offices as they switched to home or other offices.

I recall visiting an IBM office in the mid-1980s whereby they had already gone to a virtual desk approach. The staff worked mostly out of their homes or were in offices on the customers' premises. They rarely went into the main office. So, the main office consisted of a bunch of desks which belonged to no one in particular. If they needed to be there for a while, our IBM staff would use whatever desk was available.

That approach allowed IBM to cut down on their office space tremendously - and that was in place over 20 years ago.

A neighbor works out of his house. His division sells some type of service to hospital emergency rooms. Their regional office consists of just a few desks and would not house all their staff if they all showed up at the same time. When they need to have meetings, they go to a nearby hotel and rent a meeting room.

Yes, it does happen.

Ostensibly the company agrees to the approach when it makes the employees more productive. You as a taxpayer benefit from that increased productivity. The company makes more profit, on which they pay tax. Or, they save jobs that would otherwise get shipped out of here. We save on CO2 production and traffic congestion by having yet one more person off the road for a bit less every day. from the person's commute. Or maybe they do it because they can pay the employee less because he wants it this way - which is good for you as well.

We shouldn't think just of deductions as if they are something evil to be detested by taxpayers, but hopefully they are related to things that foster a more competitive and productive work environment.

Or it didn't happen at all. If it did, it wasn't in a case Lexis has heard of.

Revenue agents may take all kinds of crazy positions in the course of an audit. That doesn't make them the law.