Alright, so I switched jobs so that I can work for home. In addition to all the extra family time, what other benefits are there for a home office? I know there’s some sort of tax deduction(s), but I’m curious to know what they are.
Is there a CPA in the house?
Sorry to disappoint you, but there are no tax breaks for a home office.
You get the normal breaks that any business gets.
If your company leases an office, it gets to deduct, against its earnings, the cost of the lease as a business expense. If the your company office happens to be in your house you get to deduct the cost of the “leased” office space. If your office is 10% of the house, you can deduct 10% of the lease.
Note that if you are an employee of another company who happens to be allowed to work out of your house, things are a little different.
The company saves money by not having to provide you office space, so they may be paying you more. They are them paying you that portion of the office “lease”.
You also get credit for reimbursed business expenses. If they are supposed to provide you with something, but they require you to buy it and don’t reimburse you, you get credit for that.
And like anything with the IRS, there are limits on how much you get credit for.
The big question is whether you are working as an employee of the company or as an independent contractor. If they are witholding taxes from your paycheck, you are probably an employee. It is harder to deduct home office expenses as an employee, but not impossible.
If you home office is the ONLY place you have to do your work (other than seeing clients, etc.) and you use the home office ONLY for work, you can deduct many of your household expenses.
Mortgage/Taxes - are already deductible if you itemize, putting those towards your business just moves them around, plus, if you sell your house and have been using some of it as home office deductions, you might not be able to eliminate some of the gain when you sell the house.
Rent - Not currenly deductible, but could be if you use part of the home as an office.
Utilities - part could be deductible (eg. your office is 10% of your total home, 10% of your electric, gas, water, etc. would be deductible. Now if you had a separate phone line put in for your work, that would be entirely deductible as a business expense.
I would recommend going to the IRS website at
http://www.irs.ustreas.gov/plain/forms_pubs/pubs.html
and get Publication 587 (in PDF format)
That will get you a lot of the information you need.
P.S. This may not be so important since the IRS has a severely reduced emphasis on audits in the last 5 years, but it used to be that home offices were a big tax dodge, so they raised a red flag for examiners. This is not to dissuade you from taking a legitimate deduction, and, even so, the chances of audit are very small, but make sure you have the paperwork to back up the deduction.
Thanks for the input.
I tried the IRS site twice, and both times my computer crashed…not sure what that means, but I think I’ll just let my accountant figure it all out.