Home office standard deduction

[JohnH]

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.

And I'm betting it's also uphill in both directions. :)

[Lion EA]

Hopefully that auditor has retired by now!

[Eric]

You guys are making me paranoid. I have a beanbag chair in the corner for my dog to sleep on while I work.

[mcb39]

Does this mean that I have to take down the picture of my Mom, Myself and my Granddaughter; the three initials that create the MCB in my business name? Rediculous! What about the corkboard that holds all the Thank You cards from my clients? What about all the gifts from clients that are sitting around the office? I do use the closet in the old part (prior to the addition) for my clothes. Would duct tape work to seal it if they prefer that I not wear clothes to work?

In reality, I have never heard of the IRS checking out a home office, but I suppose it has happened. If they insist, I could carry my laptop to the kitchen to read my e-mail.

[Guest Taxed]

As Lion said hopefully that auditor is now gone. The few auditors I had to deal with were reasonable and not a jerk like that. But then they were looking into other business expenses, and for most part accepted plausible explanations and alternative documentation. This guy must have had something against OIH?

[GeneInAlabama]

You guys are making me paranoid. I have a beanbag chair in the corner for my dog to sleep on while I work.

Does the dog have vicious looking teeth? Maybe he would qualify as a guard dog. Or maybe you could train him to do data entry and claim him as an employee.

[jainen]

>>What about all the gifts from clients that are sitting around the office? <<

Obviously you claim those as business income, so they belong in the office! But I certainly hope you don't leave your office door and window open, because cross-ventilation for the rest of the house would be non-exclusive personal use!

[mcb39]

I do claim all of my monetary income. I don't have cross ventilation with the rest of the house. It is pretty much tied to the office which consists of two rooms separated by an arch; each of which has a ceiling fan. I'm really not worried about this particular subject. I have already been inspected by the insurance co and the assessor (DUH). The only issue I have had was with the zoning inspector who had me change the blueprint to read "family room" as they didn't know how to coordinate a commercial room with a non-commercial house. I kid you not.

[Lion EA]

My husband tracks dirt into my office. In fact, I shouldn't let my husband in my office! Although, I prepare our joint return for free, so is he a client?

I have a bulletin board full of client pictures, such as the newly born tax deduction, and thank you notes -- but that's all business relationships.

When I was being photographed for CCH's Partners quarterly magazine, the stylist had me bring in some personal pictures from elsewhere in the house because I had none in my office. I brought in the kids' graduation pictures which she placed on my desk for the photo shoot.

Most audits I've heard about in recent years are letter audits and are concerned with things like mileage.

My ex worked for a large company, part of the military-industrial complex. The military contracts required him to have a lock on his door due to his security clearance; however, the company allowed him only 3/4 walls due to his level within the company -- anyone could've climbed over the walls and not been stopped by a locked door. HR told him that he didn't qualify to have a plant in his office! So, they started bringing in things like silver tea services, fondue sets, empty brandy decanters/snifters, and other things that weren't specifically forbidden in the printed employees' manual. His boss was moved into a lovely paneled office but didn't have the level to merit paneling, so the paneling was removed.

[jainen]

>>personal pictures<<

My favorite audit hinged on personal pictures. The client claimed 100% office in home for a big day care operation, but since it wasn't licensed the tax code really didn't support her deduction. And that was the first thing the auditor asked for! I looked at the children's photos on her desk, and knew this was a working mom who could never find enough child care herself. So I explained that the tax code only says "not in violation," and since the client hadn't actually been cited by local authorities... case closed!

[GeneInAlabama]

>>His boss was moved into a lovely paneled office but didn't have the level to merit paneling, so the paneling was removed.<<

Now that REALLY makes a lot of sense. Are you sure he wasn't working for the government?

[Lion EA]

May as well been working for the government as he was working for a large firm in a division that relied on government contracts.

[Guest Taxed]

Got a call from one of my good client's wife. Her husband got laid off from engine maker Pratt and Whitney in CT. Another company that relied on Defense contracts because GE cleaned its clock on latest generation civilian aircraft engines like the GENx.

I have 2 other clients that work for P&W and I am afraid to find out.

[TheFinanceWriter]

>>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.

I understand the part about violation of the exclusivity provision for an area that grants access to another area of non-business use. But, the idea of dividing a room to account for a section of exclusive business use is still possible. For this reason, I find that exclusive business use of more than about 300 square feet by a single self-employed individual is dubious. Anyone with a square office comprising 400 feet has a 20' x 20' space. That is enormous for one individual who is merely working at a computer.

Regarding, "the IRS does not allow any personal touches in an OIH for the SE." I am unable to place my finger on the section of the Tax Code that expresses this fact. Perhaps a Tax Court case supports this contention. I would be most grateful for further enlightenment. Thanks.

[jklcpa]

I find that exclusive business use of more than about 300 square feet by a single self-employed individual is dubious. Anyone with a square office comprising 400 feet has a 20' x 20' space. That is enormous for one individual who is merely working at a computer.

Really? My home office is my sole place of employment and is that big. In that space I have a large desk, several chairs that clients sit in, my chair, separate computer hutch, small table with printer, small table for binding machine, several lateral file cabinets, a copier, shredder, a place to temporarily put client files with work in process, and closet all taking up that space. Other than one non-accounting picture on the wall and a dog sleeping on the floor at the moment, it is exclusive use. Not all of us work in a cubicle.

[TheFinanceWriter]

Really? My home office is my sole place of employment and is that big. In that space I have a large desk, several chairs that clients sit in, my chair, separate computer hutch, small table with printer, small table for binding machine, several lateral file cabinets, a copier, shredder, a place to temporarily put client files with work in process, and closet all taking up that space. Other than one non-accounting picture on the wall and a dog sleeping on the floor at the moment, it is exclusive use. Not all of us work in a cubicle.

Thanks for adding to my point. You mention many more uses of your space than "merely working at a computer" -- such as meeting with clients, file storage, copying, and binding. Hence, your office seems to deliver the extra utility that demands plenty of space beyond a common operation with fewer elements.

I'm more interested in the concepts posted by others that imply your "one non-accounting picture on the wall and a dog sleeping on the floor" could disallow business use of your home. That seems preposterous to me, but of course many features of the tax rules are somewhat preposterous. I'm interested in knowing if you believe that you're ignoring tax law by keeping the picture and the dog.

[jklcpa]

Thanks for adding to my point. You mention many more uses of your space than "merely working at a computer" -- such as meeting with clients, file storage, copying, and binding. Hence, your office seems to deliver the extra utility that demands plenty of space beyond a common operation with fewer elements.

I'm more interested in the concepts posted by others that imply your "one non-accounting picture on the wall and a dog sleeping on the floor" could disallow business use of your home. That seems preposterous to me, but of course many features of the tax rules are somewhat preposterous. I'm interested in knowing if you believe that you're ignoring tax law by keeping the picture and the dog.

Thanks for your concern, Brian. I think I'll keep the picture and the dog. My practice is a C corp, and I am not deducting expenses for the space on any return or reimbursing myself in any way, so there really is no issue for me with the picture or the dog being in my office.

[Guest Taxed]

Few years back I divided my OIH to add a reception/waiting area with 2 couches and a TV. I get a lot of use out of that area when my clients show up with their kids and we make them sit there and watch TV instead of bothering mom.

[jklcpa]

Are you watching or listening to the TV through a doorway while you are riding your exercise bike? Presumably you are contemplating your unfinished tax returns while you are riding, right?

[Guest Taxed]

Right you are. I did not put a door on the frame so I have a straight line view to the TV from my bike. I am going over the return in my mind as I am peddling (that qualifies as tax work) right?

[Lion EA]

Regarding, "the IRS does not allow any personal touches in an OIH for the SE." I am unable to place my finger on the section of the Tax Code that expresses this fact. Perhaps a Tax Court case supports this contention. I would be most grateful for further enlightenment. Thanks.

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.

You would have to ask the auditor to place your finger!

[mcb39]

Does all of this mean that when I get home from vacation I will have to remove all personal touches from my OIH Addition that was built exclusively for the purpose of conducting business and funded exclusively by monies earned by that business. I have a total of 504 sf if you count the basement under the new addition which is used exclusively for storage of files and computer equipment. I have three desks, three computer workstations, four chairs for clients and two workstation chairs. I have shelves for supplies, three printers, a copier and a fax machine. Even though I work alone most of the time, I use all of it in the course of conducting business. This may seem excessive for a one person office, but it took me over 30 years to earn it. OIH is not just Tax Prep. There is sales tax, payroll and payroll taxes, bookkeeping, etc. Since I do all of the bookkeeping as well as the taxes for my husband's business, one desk is used pretty exclusively for their checkbook and paperwork. That section of the house has its own insurance addendum to our homeowners policy, including liability. I guess what I would have to remove would be decorative pictures from the walls, the toybox for clients who bring small children along and two plants. I do not find this area excessive since prior to the addition, I was tripping over papers, research books, tax returns, etc. Also, I do have a part time assistant during the heat of tax season. My clients love my new office, but they don't like me any more or less because they came to me for years in the cramped quarters. They are just happy for me to have a much nicer work environment.

[jainen]

>>I do all of the bookkeeping as well as the taxes for my husband's business, one desk is used pretty exclusively for their checkbook and paperwork<<

This can be a problem for a home office. No deduction is allowed unless it is the principal place of business for EACH business. If, for example, your husband has another fixed location where he does planning or other administrative work, your entire home office fails the exclusive use test.

[GeneInAlabama]

>>I do all of the bookkeeping as well as the taxes for my husband's business, one desk is used pretty exclusively for their checkbook and paperwork<<

This can be a problem for a home office. No deduction is allowed unless it is the principal place of business for EACH business. If, for example, your husband has another fixed location where he does planning or other administrative work, your entire home office fails the exclusive use test.

That is a good point. Maybe if he paid her like her other clients do, it would fly. Most of her other clients would also have offices in their place of business. She probably does more routine work for her husband than for other clients, but we are not limited as to how much we can do for a client. We could even offer phone answering service for our clients.

For anyone considering having an office in home, a separate structure from the house might be a better option.,

[Guest Taxed]

>> For anyone considering having an office in home, a separate structure from the house might be a better option.,

Separate structure, separate entrance for clients to come in, separate parking space.