Home Office.. to Deduct, or Not?

[msmileyface]

Hi Cheffers,

I am debating about whether I should deduct on my taxes for a home office. I want to write off as much as possible, but I am also very honest and am not looking to "stretch" anything. Can you all offer your opinions on this based on the following info?

My understanding of the tax law is that the office must be simply that- an office, not a bedroom, playroom, etc. But then it also says that it needs to be used "exclusively" for your business.

My "home office" is a spare bedroom but there is no bed. The closet in the room is full of Pampered Chef products and other business supplies. The room itself has 2 desks, 2 computers, a printer, filing cabinet, etc. I do use this room to run my business out of. I make my phone calls, use the computer, do the filing, etc. here. However, this is not the "exclusive" use of the room, because my husband also has his computer in the room (which he uses for personal use, email, checking in with his job, etc).

Bottom line, what do you all think? Can I write off a portion of the utilities and whatnot for this "home office"? We do consider it a home office, but I don't want to mess up the taxes or stretch the rules too much.

I appreciate anyone's input and experience..

Meredith

 

[tiggerhale]

It actually doesn't have to be a whole room - but an "visually identifiable" office space. That being said, to get the Business Use of Home deductions, it does have to be 'exclusively' used for your business. So, you could count the part of the room where your desk is, but not the part that has your husbands. The Closet is different b/c for storage, it doesn't have to be 'exclusive' usage. You would determine what % of your house is the part used for your business and then you should be able to deduct that same %age of your utilities, insurance etc.I listened to a teleconference by this gentleman and found it most helpful:
http://homebusinesstaxsavings.com/Home.htmlPersonally, I'm not sure I'm going to use that mainly because the space I use for my office is not exclusively used for that purpose and the storage space I do use is insignificant compared to the rest of the house. I am going to work on carving out an exclusive-use area in the future so I can take advantage of this deduction in future years.

 

[Sheila]

It's my understanding that you have to be the owner of your home too. Renting does not qualify. But it's been a few years since I've prepared taxes! My sister owns a tax office so I let her do mine and let her worry about keeping updated on all the rules. If you are doing PC full time, it might be worth it for you to do the research. If you do it as more of a hobby it probably won't benefit you to waste your time and energy trying to figure out the rules and details to claim the deduction.

 

[lesliec]

I would say write it off. I try to stick 100% to the rules, but I also know that there are lots of little deductions that get missed. For example- I count mileage to and from shows, but if I need something from the grocery store, I am not going to make one trip for PC and another for my family shopping, and won't end up writing off that mileage. Does that make sense? My office is completly PC, but I do have a shelf that has some school stuff for my kids on it. I am not going to get so picky to un count that b/c technically I should be able to write off my kids schooling, although I don't.

 

[lesliec]

but..... If half of the space is clearly DH's and not used for PC, then I would only count the sq ftg of half of the room.

 

[NooraK]

You'll possibly want to consult a tax professional, but I recently heard that when you eventually go to sell your house, your house will have to have appreciated in value equal to what you've deducted for home office. I don't know if I understood it right, but that's what it sounded like to me.

 

[msmileyface]

This is all good info! Thank you. I am still working it out.. not sure if it's even worth "going there" you know? It's such a small part of the house so I'm not sure.

 

[Jennie4PC]

We do not count ours.

 

[ShelbyMichalek]

but..... If half of the space is clearly DH's and not used for PC, then I would only count the sq ftg of half of the room.

yes, and like one poster said. Calculate the percent of square ftg in your house that is used as the home office and that's the percent of say, your electric bill you should use. Also, if you use your phone for business for 75% of the time, you can use that percent as a deduction.

 

[msmileyface]

I figured that the sq footage of my half of the office is 62 ft. Seems insignificant, but when u figure that even being 3% of the whole house its still 80 or so dollars of the mortgage based on those numbers.. 80 a month times the 10 months I've been at it, and that's another 800 I can write off and feel confident that I am not cheating

 

[tiggerhale]

You can deduct if you rent now - not sure when it was changed: "when you have a home-based business you can legally deduct the Business Use Percentage of either your mortgage interest or the BUP of your Rent." The thought is that traditional businesses don't have to own their office spaces in order to deduct the cost of using it so why should the home-based. On the selling piece, "a recent change IRS regulations now state that there will no longer be taxation on the 'gain on sale' ie profit portion of a principal residence that would be allocated to the business use of that residence. Since you were authorized to claim a business deduction for depreciation of the portion of your home used exclusively for business, a 'recapture' of the depreciation taken for home office will likely be required, even if you did not claim it, but that amount is miniscule compared to what taxation on the 'gain' could have meant. Be sure to consult with a tax professional if this situation applies to you." >this part is not so clear to me. Parts above in quotes taken from page 69 of Home Business Tax Savings Made Easy by Ronald R. Mueller - 5th edition, copyright 2010.