{"id":15932,"date":"2014-11-12T13:07:03","date_gmt":"2014-11-12T18:07:03","guid":{"rendered":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2014\/11\/flexibility-with-home-office-deduction.html"},"modified":"2014-11-12T13:07:03","modified_gmt":"2014-11-12T18:07:03","slug":"flexibility-with-home-office-deduction","status":"publish","type":"post","link":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2014\/11\/flexibility-with-home-office-deduction\/","title":{"rendered":"Business Report: Flexibility With Home Office Deduction"},"content":{"rendered":"
\n
\n\"melinda\n<\/div>\n
Melinda Bucknam is a CPA with Bucknam, Rodecker CPAs, Wilton\n<\/div>\n<\/div>\n

BY MELINDA BUCKNAM, CPA<\/p>\n

Afraid of an automatic audit from the tax man
\nthis year? Want to write-off that home office but
\nyou’ve heard it’s a red flag? Not necessarily the
\ncase.<\/p>\n

Articles sometimes claim that having a home
\noffice increases your chances of being audited.
\nWhile this may be statistically true, the IRS still
\naudits less than 1 percent of returns annually. For
\nfolks making more than $200k, the audit rate is just
\nabout 3 percent and for income over $1 million,
\nit jumps to almost 10 percent. I’m guessing most
\npeople that make over $1 million a year don’t have
\na home office anyway. But if you legitimately qualify
\nfor a home office, you should take it.<\/p>\n

The home office deduction has gone through
\nmany changes over the years. It went from an easy
\nwrite-off, to stringent rules that made it almost
\nimpossible, to court cases that made it easier again,
\nand with the latest twist, the new simplified option.
\nIntroduced by the IRS in 2013, we’ve found our
\nclients like this new method much better.
\nSome people think that the write-off for a home
\noffice isn’t worth the trouble. This would generally
\nbe true if it were not for the ability to include as
\na deduction commuting back and forth from your
\nhome office to any business meeting or event,
\nwhich the IRS calls “commuting mileage.” Adding
\nthis can make the auto write-off quite large, and
\nhaving a home office is the pathway to get there.<\/p>\n

While the auto portion may be easy, the traditional
\nway (prior to the 2013 change) of calculating
\nthe home office deduction can be a bit of a nightmare.
\nIt involves figuring out the square footage of
\nthe entire home and dividing the home office area
\ninto that, to get to a percentage use, which is then
\nmultiplied by qualifying home expenses.<\/p>\n

After this, you need to calculate depreciation for
\nthe home (the nightmarish part), which involves
\ndigging up original closing documents and capital
\nimprovements over the years, then doing a number of complex calculations regarding land and being
\nexposed to depreciation recapture if the house is
\nsold for a gain later. If you moved during the tax
\nyear–let’s not even go there. Bottom line, this
\nis a lot of information to gather and can be overwhelming
\nthe first year the home office expense
\ndeduction is taken, especially if it’s the first year
\nyou are in business. Putting together income and
\nexpenses can be perplexing enough for some new
\nbusiness owners.<\/p>\n

Alternatively, by using the new IRS simplified
\nmethod, the only thing needed is the square footage
\nof the actual office. Just multiply that by the
\nIRS-determined rate of $5 to arrive at the write-off
\nfor the year. This is absolutely perfect for people
\nwith incomplete records, who didn’t keep their
\nreceipts, or who just want to make tax time easier.<\/p>\n

Plus, the full amount of mortgage interest and
\nproperty taxes paid can be taken as an itemized
\ndeduction, instead of deducting out the part taken
\non the home office form. An added benefit: no
\ndepreciation recapture upon later sale of the home.<\/p>\n

One method may be better than the other from
\nyear to year, and the IRS allows switching back
\nand forth. The traditional way may still be worth
\nit for businesses that have a home office space and
\nstorage greater than 300 square feet, the limit for
\nthe simplified method. For offices under 300 square
\nfeet, the traditional approach may still make sense
\nif you have significant home expenses, provided
\nyou have the records necessary to do it this way.<\/p>\n

Let’s not forget, that the rules for qualifying for
\nthe home office still apply. The office must be used
\nexclusively and regularly for the business. It can be
\npart of a room, not necessarily a separate room, so
\nlong as it meets this exclusive and regular use test.
\nWhen figuring out the square footage of your office,
\nspace used to store supplies, inventory, tools, and
\nsamples can be used.<\/p>\n

S corporation owners with home offices are subject
\nto itemize deduction limitations that usually
\nmake it almost impossible to deduct home offices.
\nBut recently the IRS has allowed this deduction via
\nan employee reimbursement expense check since
\nowners of S corps are also employees. The company
\nmust set up an accountable plan by preparing a
\nwritten agreement and follow some guidelines,
\nbut once it’s set up, it’s quite easy. This is a great
\ntax-free way to get money out of the business, while
\nthe company gets the deduction.<\/p>\n

Rather than spending valuable time gathering
\nup all of the receipts and information to use the traditional
\nway of deducting a home office, consider
\nspending that time on growing your business. The
\nnew simplified option is a quick and easy way to
\nstill get a decent deduction.<\/p>\n

Bucknam is a partner in Bucknam, Rodecker
\nCPAs, Wilton.<\/p>\n

Photo Courtesy Bucknam, Rodecker CPAs<\/p>\n","protected":false},"excerpt":{"rendered":"

Melinda Bucknam is a CPA with Bucknam, Rodecker CPAs, Wilton BY MELINDA BUCKNAM, CPA Afraid of an automatic audit from the tax man this year? Want to write-off that home office but you’ve heard it’s a red flag? Not…<\/p>\n","protected":false},"author":88,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[67,84,133],"yoast_head":"\r\nBusiness Report: Flexibility With Home Office Deduction - Glens Falls Business Journal<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2014\/11\/flexibility-with-home-office-deduction\/\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Business Report: Flexibility With Home Office Deduction - Glens Falls Business Journal\" \/>\r\n<meta property=\"og:description\" content=\"Melinda Bucknam is a CPA with Bucknam, Rodecker CPAs, Wilton BY MELINDA BUCKNAM, CPA Afraid of an automatic audit from the tax man this year? 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