Home office standard deduction

[kcjenkins]

Eric, if your utility companies are like most all of them, you don't need to keep up wih the monthly statements, because you can go on line and download a year's data as one form, and that will be sufficiant documentation.

[Eric]

Thanx, folks! Like Eric, my clients are busy and sometimes don't find it a good use of their time to keep organized records or even gather/keep documents at all that they need only once/year.

If only it were simply just a matter of being busy. It's probably a mental problem that has a label somewhere.

Eric, if your utility companies are like most all of them, you don't need to keep up wih the monthly statements, because you can go on line and download a year's data as one form, and that will be sufficiant documentation.

For electrical service, that would work. Lowes has a thing called My Lowes that allows you to keep track of your home improvement stuff in one place, so there's that. Heating oil is a big expense up here, and they're in the dark ages when it comes to billing. I suppose I could bother them for a printout of my account once a year.

[kcjenkins]

Yes, in most states they are REQUIRED to provide you that annual report, if you ask for it. At least for all 'regulated' industries, and I'd expect that to include the oil companies. Not sure about your state, but I bet they do, especially because, as you say, it's a major expense up there.

[SaraEA]

Not all clients with an OIH are lazy/busy/paperwork challenged. Many simply do not meet the regular and exclusive use tests. Sure they have a home office, which doubles as a place to park their exercise equipment, or where their kids do their homework and use the printer, or where they spend their weekends watching streaming video or playing internet games. I suspect that many who claim OIH don't meet the tests. On the other hand, I have a self-employed client who uses the entire basement of his large home as his home office--there is no other office--who has never taken OIH because HE told ME the use isn't exclusive. Maybe he has his washer and dryer down there, I don't know. The safe harbor rules will certainly benefit him.

[Guest Taxed]

But the safe harbor rules don't exclude the regular and exclusive use test. So whether you want to use the safe harbor or the regular method, that test must be met. What it does is gives you the option of not tracking real estate taxes, utilities, repair, insurance and depreciation.

[kcjenkins]

Exclusive is the problem word. I wish they would change it to, say, "at least 85% [or 90%] business use". After all, those who have a business office at some other location probably play computer games from time to time, on their office computer, or watch the game on the "business" TV in their lobby, etc. Just because someone has his washer and dryer down there, or park their exercise equipment, or even where their kids do their homework and use the printer, or where they spend their weekends watching streaming video or playing internet games does not make it not a "real" office, if that is where they regularly work to generate their taxable income. When my kids were in school they often used my office to print their school projects, etc. But merely because it was a separate office I rented and operated out of, I did not have to measure that use. I bought 'personal use' paper as needed, but otherwise nothing.

[Guest Taxed]

From a practical perspective, how many times have IRS visited your HO to see if the exercise bike is parked there?

[jainen]

>>From a practical perspective, how many times have IRS visited your HO to see if the exercise bike is parked there?<<

By practical, do you mean anything goes if you can get away with it?

[Guest Taxed]

Yes in that example with an exercise bike in the corner of the office.

[Lion EA]

Your office does not have to be an entire room. You can have an exercise bike or washer/dryer or anything else at one end. Just measure the square footage that IS used regularly and exclusively for your OIH. Now, mixed use of your desk or computer or anything else in your "office area" is going to disqualify OIH. (When my kids visit, I make them use hubby's computer in the kids' old room and not my computer in my office.)

[jainen]

>>You can have an exercise bike or washer/dryer or anything else at one end<<

No you can't. There is no de minimus exception. That high standard was set long ago by a ruling that disallowed the deduction because there was a non-business closet in the room, even though the closet space was not claimed. The ruling said the room was not used exclusively for business, because it also provided access to the closet.

On the other hand, you may agree with Taxed that you can do anything you want as long as you don't get caught.

[JohnH]

Now my mind is dredging up images of Les Nessman's separate office in "WKRP in Cincinatti" - an imaginary line drawn on the floor and an invisible door that people had to open and close.

[Guest Taxed]

I do have an old exercise bike stored behind by filing cabinets and the bathroom. During tax season when I am stressed and between appointments I do hop on it for 30 minutes now and then. My office is an attached structure behind my house with separate entrance.

[JohnH]

The bike is an ordinary and necessary business expense. What better way to speed up your circulation and boost the amount of oxygen in your brain betweeen returns?

[Lion EA]

My own office has nothing "non-officey" in it. Even my closet is full of office supplies only.

I did go through an audit for a couple who shared a room for their two separate businesses. One entered and turned right to his desk, computer, printer, bookcases, etc., and the other turned left to her desk, etc. We claimed almost half the space for each business. It was a very large room, over a generous two-car garage, the type of room that is usually a family room in a split level. They had shelves on the wall that contained the door, and those shelves held personal items; that's why we claimed "almost" half. They'd mapped out the room, separating the floor space they used to enter and to access those shelves and to hold those shelves. They'd taken pictures from all angles. I'd done some bookkeeping for one of them briefly to set her up in QB, so I saw the space myself and warned them that their personal use could disqualify their OIHs. The auditor was fine with the dimensions they used, saying that as long as they claimed only the area used regularly and exclusively for business that they qualified to take OIH deductions. That's only one auditor's opinion.

I've had realtors that seem to be told just about anything from their companies re OIH. Two had been through audits before I knew them. One had a desk in her living room. Her pictures and diagrams survived her audit. The other had a desk and file cabinet in her finished basement along with her laundry area and storage and maybe her TV area. Again, her pictures and diagrams survived her audit. I had my doubts about regular and exclusive, but both had kept an audit file with their pictures and diagrams and no-change letters and handouts from the realty legal departments explaining how to qualify an OIH. They had more corporate handouts telling them what they could deduct than a Mary Kay salesperson! I've sent a couple of realtors away, though.

A friend once lost her OIH in an audit when her pictures showed her screen saver was a picture of her granddaughter. By the time she became my client, she was thorough about keeping all personal items and activities out of her office.

Then there's the apocryphal story I heard at Block about the pediatrician showing his OIH pictures during his audit. The IRS agent took out a magnifying glass and discovered that the medications in his mini-frig were for horses! Disqualified.

How about if I buy one of those treadmill-desks?!

[Guest Taxed]

Sometimes we tax preparers split hairs too often times!

I wonder if IRS will increase the audits in a few years if they don't see a certain percentage of OIH claimers go for the safe harbor?

[JohnH]

And let's never forget that if the taxpayer qualifies for the home office deduction because they store product in there, then this opens up the deduction for food and vet bills for the "security cat" who guards their inventory.

[joanmcq]

I'd like to have an exercise bike as a desk chair. That would certainly help avoid the tax season gain I seem to get every year!

[jainen]

>>I'd like to have an exercise bike as a desk chair<<

How about an exercise bike as the whole desk? http://fitdesk.net

[Guest Taxed]

I'd like to have an exercise bike as a desk chair. That would certainly help avoid the tax season gain I seem to get every year!

Get one you will not regret it.

[GeneInAlabama]

>>A friend once lost her OIH in an audit when her pictures showed her screen saver was a picture of her granddaughter.<<

Now, that is being really picky. How many auditors have pictures of their family on their desk. My understanding is that since the IRS closed many of their offices, their agents work out of their home and the government pays them for the use of their home office. Do they fall under the same rules that the rest of us do?

[Guest Taxed]

Probably not.

Here in the NE we have a lot of insurance companies that will pay their claims examiners, investigators and even phone reps an allowance to work out of their home and pay for internet, phone etc. Basically is is an accountable reimbursement plan.

[Lion EA]

I know, Gene, that was my thought when she told me about it during a TGIF. The auditor told her that employees on a company site can have personal touches as the company allows, but that the IRS does not allow any personal touches in an OIH for the SE. It was pretty tiny, so I guess she didn't lose much. She immediately set up in a larger room, keeping any personal touches out and doing personal correspondence, bills, etc., on a separate laptop in her other living areas. She was divorced by the time I met her with grown kids not living at home, so she had lots of flexibility in her small house. She took lots of pictures but also made sure her new OIH could pass a surprise visit from that or another really picky auditor, even though she lives in a little town in the boonies of CT that would probably be a waste of travel time of an auditor for her small business. She was undoubtedly my most compliant client, but she left me after a few years when her stockbroker started preparing taxes too.

[Guest Taxed]

I better get rid of my family's pictures from the office?

>>> but that the IRS does not allow any personal touches in an OIH for the SE <<<

This auditor must be the worst? I wonder if there is a picture of his kids on his desk?

[GeneInAlabama]

At least I don't have this problem. My office is a totally separate structure about 35 feet away from my home. Only problem is commuting. I have to walk to work every day, rain or shine.