Category Archives: Home Office

Home Office Expenses of a ‘One Man’ Corporation

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As a self-employed sole proprietor you can deduct as an ordinary and necessary business expense the costs of a qualifying home office on Schedule C.

If you are an employee of your own one-man corporation, whether a regular “C” corporation or a “sub-chapter S” corporation, you have three choices for handling the costs of a qualifying home office.

* You can deduct the costs as an unreimbursed “employee business expense” under “Job and Most Other Miscellaneous Deductions” on Schedule A. Expenses in this category of itemized deduction are only deductible to the extent that the total exceeds 2% of your Adjusted Gross Income.

* The corporation can pay you rent for the home office.

* The corporation can pay you for the “out-of-pocket” costs of a home office under an “accountable” plan for employee business expense reimbursement.

The third option, being reimbursed under an accountable plan, provides the greatest tax savings. It is an excellent way to get money out of your closely-held corporation tax-free. The corporation can deduct the amount of the reimbursement and you do not have to report the payment as income.

This option is “more better” than having the corporation pay you rent for the home office. While your corporation can deduct the rent paid to you, you must report the rent as income on Schedule E. You can only deduct the pro-rated share of real estate taxes, mortgage interest and casualty losses against the rental income on Schedule E, expenses that are otherwise deductible in full on Schedule A. You cannot deduct the proportionate share of insurance, utilities, repair and maintenance, depreciation or any other indirect expenses.

To qualify as a home office, the space (it does not have to be an entire room) must be used regularly (on a continuous, ongoing or recurring basis) and exclusively (there can be no personal use – take out the tv) for your trade or business, and it must be your principal place of business or a place where you physically meet with patients, clients or customers on a regular basis. The space will be considered your principal place of business if it is used for performing administrative or management activities, such as billing, bookkeeping, ordering supplies, setting up appointments and writing reports, and there is no other fixed location where you regularly perform these activities.

As an employee the home office must be for the convenience of your employer. This means the home office is required as a condition of employment, it is necessary for the business to function, or it is necessary for you to properly perform your duties as an employee. If you do not have any other place of business, such as a rented office or storefront, your home office should qualify.

I used to rent an office for my tax practice. Even though I did administrative work in a “regular and exclusive” space at home, and on rare occasions met with clients there, I could not claim a home office deduction or be reimbursed for home office expenses. I have since given up the rented office and work exclusively out of my home. I now have a qualified home office.

For an expense reimbursement plan to be considered “accountable”, the expenses that are reimbursed must be for actual job-related expenses (you cannot reimburse personal expenses) and you, as the employee, must substantiate the expenses by providing your employer with receipts or other documentation.

You should create a monthly “Employee Expense Report” form for your corporation. This is a good idea even if you don’t have a home office. Start out with lines for business mileage and other out-of-pocket business expenses, such as postage, office supplies, parking and tolls, meals and entertainment, etc. Staple receipts for these items to the report.

Include a Home Office section in the report. Calculate the “business use percentage” of your home by dividing the square footage of the office area by the total square footage of the home. List each item of expense paid during the month, such as real estate taxes, homeowner’s insurance, oil heat, gas and electric, water and sewer, alarm or security service, garbage disposal, general repairs and maintenance, and mortgage interest (taken from the monthly mortgage billing statement or a loan amortization statement you can create online). Multiply the total of these expenses by the business use percentage to determine the amount to be reimbursed.

While there is no question that a self-employed person can, within limits, deduct depreciation on a home office, because depreciation is not an “out-of-pocket” expense it follows that your corporation cannot reimburse you for the depreciation of your home office. However, this issue is not clear.

Total up all the business expenses listed on the form, including the home office amount, and write a check from the corporation to yourself for this amount.

You must reduce the amount of your itemized deduction for real estate taxes and mortgage interest by the amount of reimbursement you receive from your corporation during the year for these items. If your real estate taxes for the year are $10,000, but in the course of the year you were reimbursed $2,000 by the corporation, you can only deduct $8,000 in real estate taxes on Schedule A.

Deducting, or being reimbursed for, a home office today will no longer turn around and bite you when you sell your personal residence, as had been the case in the past. If the home office is within the same “dwelling unit” as the residential portion of your home, you are treated as using the entire home as a principal residence.

If the office space was 10% of the total area of your home, you DO NOT have to pay income tax on 10% of the gain from the sale. You will be able to exclude the entire gain, up to the $250,000 and $500,000 limits, if you qualify, less any “post-May 6, 1997″ depreciation. You must report any depreciation you deducted on the home office after May 6, 1997 as “unrecaptured Section 1250 gain”, which will be taxed at the capital gains rates up to a maximum of 25%.

You are married and you sell your personal residence, which you owned and lived in for the past 4 years and in which you had a qualified home office that was 15% of the total area, for a net gain of $300,000. During the 4 years you lived in the home you were able to deduct $5,000 in depreciation on the home office portion. You can exclude $295,000 of the gain, and you will pay tax on only $5,000.00.

If you were not able to deduct depreciation on your home office, or were not reimbursed by your corporation for depreciation, there is no income to report and 100% of the gain, up to the limits, will be tax-free.

Copyright (c) 2005 by Robert D Flach LLC

Office at Home – How to Build Your Own DIY Desk

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The dream of working from home is becoming more of a reality for many of us. Whilst the recession is inspiring many to realize their independent entrepreneurial desires, an increasing number of people who have been made redundant are being forced to work as freelancers. Yet, other factors stimulated by the economic climate are also causing companies and businesses to incorporate staff who work from home as a logical space and money saver.

In order to ensure your home office is as efficient as possible, setting up the space needs careful consideration. Ideally there needs to be a good balance of comfort, accessibility to information, tools, storage, and free space. Typically, the less cluttered the space is, the less likely to be distracted you’ll be. But additionally, everything that is necessary to help you achieve your day to day work, such as your computer and books, needs to be as easy to find as possible. Of course, the office desk is an integral factor in all this.

Free standing desk
A simple free-standing four-legged desk will be, perhaps, the least space-efficient but the simplest type to construct yourself with little more than a cordless drill and a jigsaw. Plywood is likely to be the best material for the desktop, and a sturdy

Modern Home Office Decorating Ideas

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A home office might not get a lot of non-work related use but just because you have to work in there doesn’t’ mean it can’t have great style! Here are some home office decorating ideas that will give your room sleek modern style.

The first thing you need to consider is the color palette and there’s nothing worse than a bland office. Choose a modern color palette such as black, tan and white colors as your color scheme. If you want something more colorful pick one bright color like red or orange that you can use for accents to really make the room pop.

There isn’t a lot of accessories that one associates with a home office, but you can make the room interesting by buying neat modern pencil holders, trash basket and in boxes. For furniture, stick to a modernistic style with dark or light stained wood furniture. Careful selection of accessories and furniture will benefit your modern decorating look. Make sure you pick ones that have plain but interesting shapes.

Window treatments can really add to your modern home office decorating ideas and choosing a style that is somewhat minimalist is key. Try enhancing your windows with sheers or some good quality blinds. After you get the ideal look on your windows, you might realize the walls are bland by comparison. To get your walls looking as great as your windows, consider adding black and white photos in sleek dark frames.

The ideal lighting can also help to accentuate your decorating theme as well as make your work tasks easier. offices usually have desk lamps as lights but you also need good overhead lighting as well as some accent lights for guest seating. Buy lighting that is chrome and funky or sleek chrome to augment the modern home decorating style design approach.

Another key component that will help give the room designer appeal together is flooring and adding wall to wall carpet to your modern office can make the room look great. The ideal kind of flooring for your stylish and sleek style is shag or medium pile in white, black or beiges.

The finishing touches give your room a unique appeal so think about enhancing your modern style with sleek aluminum accents, a bamboo plant in a low vase combined with stainless steel bowls, angular pieces, and some retro kitsch to make the most of your interior decorating scheme. For a softer look add pillows that are simple with solid colors In addition to greenery and plants.

You can get more modern home office decorating ideas by looking in magazines and decorating books. The key is coming up with a plan for your color palette as well as the items you will need to buy. Make sure you follow your plan and buy the best items and your room will have the feel of a sleek designer home before you know it!