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Home office standard deduction


jainen

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A home office can be decorated, have decor. Even that very picky auditor did not object to pictures on the walls (just the photo of the grandchild as computer wallpaper). Plants would be office decor, even manufacturing oxygen for your clients and yourself as you work. And, the toy box for clients who bring small children along is exclusively for business use if you yourself do not have small children using it, your own children or children of personal guests. That picky auditor -- and it was enough years ago that I hope she's retired! -- did not object to anything used exclusively in business, just personal items that had personal use while in the supposed OIH, such as personal family pictures scrolling across the computer. Now, I took lots of clients into my living room a couple of years ago when my son married to show them the wedding pictures on my piano. But, I don't have a piano in my office.

And, do note Jainen's explanation of two businesses sharing an office as something that can disqualify the exclusive use test.

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.

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On page 3 of Pub 587, the first paragraph titled EXCLUSIVE USE says,

"To qualify under the exclusive use test, you must use a

specific area of your home only for your trade or business.

The area used for business can be a room or other separate

identifiable space. The space does not need to be marked off

by a permanent partition."

I believe there was a case where the taxpayer used a corner of his living room and prevailed.

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I've worked with only one auditor who actually made sense to me, although many did make some sense of the law. (But, then the laws don't necessarily make sense to me; they're just the law!) I've worked with auditors who'd made up their mind before we met. I've worked with auditors who didn't understand the law and missed things, but in my clients' favor. I've worked with auditors that I had to explain the law to them, read the code to them, etc. I was not involved with that picky auditor, but there may be more out there, or more that can be that picky when they're having a bad day. I don't know if I would've urged a client to fight it, if that friend had been my client then or if I hadn't heard her story long after the fact. As for my friend, she returned to the screensavers as bundled with Windows and no longer personalized her screensaver.

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>>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.

Believe me, neither my husband nor my sons do any administrative work at their place of business. All paperwork, bills, sales contracts, checks and bills pass through my office. I do the inventory, etc even though I have no personal interest in their partnership. I make financial decisions for them, advise them and babysit them. If someone calls them with any question regarding finances, insurance, tax issues, etc; they get referred to me. This is not the way I would like it to be; it is the way it is. They do the buying and selling and answering of their phone. I take it from there. I would challenge the IRS to find a spot in their place of business where any administrative work is carried out. They are a client just like any other client who brings me their paperwork in a shoebox. They don't have a clue. Again, I would prefer it to be different but doubt that it will ever change unless I leave this earth and then they will be in a world of hurt.

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>>I would challenge the IRS to find a spot in their place of business where any administrative work is carried out.<<

The rule is "administrative or management," and it sounds like the partners do manage the business themselves, buying and selling and answering their phone at another location. Another issue with partnership is that the partnership agreement must explicitly require the partner to incur a home office expense. Then you must divide the office expenses between the two businesses, and limit the partner's deduction to the percentage of income generated by the paperwork rather than whatever they are selling.

Or you could just shine it on, if you don't like the rules.

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>>I would challenge the IRS to find a spot in their place of business where any administrative work is carried out.<<

The rule is "administrative or management," and it sounds like the partners do manage the business themselves, buying and selling and answering their phone at another location. Another issue with partnership is that the partnership agreement must explicitly require the partner to incur a home office expense. Then you must divide the office expenses between the two businesses, and limit the partner's deduction to the percentage of income generated by the paperwork rather than whatever they are selling.

The situation for mcb39 seems to me like her practice is providing extensive services to a client that is a partnership comprising her husband and sons. The office in home is for her business, not the partnership.

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