Taxes | Home Office Warrior

Bills to Simplify Home Office Tax Deduction

Oct 01, 2008

This could be good news for the some 20 million of us who work from a home office and would like to have a simple way to take a deduction for that office. Two bills now before Congress would simplify the home office tax deduction. It appears they may actually relax the law’s silly limitations regarding personal use of the home office space.

The two bills can be found here:

HR 7074

S 3371

Under the current tax code, even if a taxpayer muddles through the home office deduction work sheet, they find the deduction cannot be taken if they have used the home office for non-business purposes, like making a personal phone call or surfing the Internet. About.com

Rep. Charles Gonzales, sponsor of HR 7074 said “The bill would bring clarity to the process of claiming the tax deduction for a home office and direct the Secretary of the Treasury to establish an optional standard deduction.” Gonzales went on to further state,

“Home businesses already make up 53 percent of all small businesses, and, in our ever-changing economy, technological advances are allowing the ranks of home businesses to grow year after year. This is one issue facing Congress that can and should be solved with a clear, reasonable, and relatively simple fix.” Press Release

HR 7074 also seems to take into consideration the fact times have changed with technology since the code was written concerning home office deduction. This bill would “modernize the deduction.”

It would allow a taxpayers to take the home office deduction they used their home to interact with clients, regardless of whether the clients were physically present.

And that is exactly how some are able to work from a home office, when in the past it would have been impossible. Contact your congressman and encourage them to vote for both of these bills.

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Ask Legal Andrew — The Home Office Deduction

Sep 18, 2008

Q:

Can I take the home office deduction on my income taxes?

A:

We’re finally tackling a question that doesn’t depend upon your local laws. The home office deduction is strictly controlled by the IRS, applying federal tax laws and regulations.

If you are a self-employed home office warrior, your deduction is pretty easy to determine. You can deduct the portion of your home that you use regularly and exclusively: 1.) as your principal place of business, or 2.) to deal with clients and customers. If you use a separate structure exclusively and regularly, you can deduct expenses for it.

What does this mean? If you have a dedicated area in your home that you use only for work, you can might be able to deduct it. But you also have to meet the other part of the test. It either has to be the place where most of your business is done, or you have to physically meet clients there.

If you aren’t self-employed, there is one more hurdle you must jump to qualify for the home office deduction. Your working at home must be “for the convenience” of your employer. If you have a desk at your employer’s office, but you choose to work at home to save gas and commuting time, you don’t qualify for the deduction.

Finally, if you use a portion of your home for a daycare business or to store business inventory or product samples, there are special rules in play.

If you own a home business, you should be carefully in tune with your possible tax deductions. This can save you some serious money at tax time. And remember that April 1st isn’t the time to think about taxes. Plan for them during the year, and tax time won’t be stressful.

For more information about the home office deduction, check out Tax Tip 2008-53 or Publication 587 (PDF) - Business Use of Your Home (Figure A on page 4 is particularly helpful), both from the IRS.

This is a bi-weekly feature at Home Office Warrior. Now is your chance to send questions to an experienced attorney. Submit your questions to Andrew at andrew@homeofficewarrior.com or leave your comments here.

Disclaimer: Andrew Flusche is a licensed Virginia attorney, but these posts do not constitute legal advice, nor do they create an attorney client relationship. For legal advice, consult an attorney licensed in your jurisdiction.

One More Burden for the Self Employed

Aug 18, 2008

It looks like our friends in DC are at it again. You know that tax gap some of those in Congress are all worried about? The tax gap, which is the difference between what the Treasury Department estimates it should receive in tax revenues and the amount it actually does receive.

It is projected that the majority of taxpayers responsible for the tax gap (57% of them) have been identified as self-employed. One way The Congressional Democrats are looking to go after one more thing in another failed attempt to narrow this so called gap are electronic transactions.

They are proposing that:

credit and debit card issuers will be required to report electronic transactions of business merchants to the IRS. They will also be required to collect and verify Taxpayer Identification Numbers (TINs) and, if they cannot verify a merchant’s TIN, to immediately begin withholding 28% of that merchant’s transactions, which will be remitted to the IRS. Making Life Difficult for the Self Employed

This is a stupid plan. These type of transactions are already well documented. And they are unlikely subjects for willful under-reporting. I would suggest you get in touch with your congressman/congress woman and tell them this is not the correct way to go about helping the U.S. economy everyone is so worried about.

To reach your congressman, us this handy Online Directory for the 110th Congress.

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Some Simple Accounting Tips For the Home Business Owner

Apr 28, 2008

Guest post from Laura Spencer.

Tax season may be over in the United States, but it’s not too late to start things off on the right foot for next year.

If you’re new to working from home, then you might also be new to the accounting that goes along with running your own business. While this post isn’t meant to be a comprehensive guide for home business owners or to provide professional accounting advice, there are a few accounting tips that can help the new home business owner get off on the right foot.

(Note: These tips are geared primarily towards a home business owner who is located in the United States, although the principles may possibly apply in some other countries.)

Track Income. Keep a record of every dime that you receive. Many independent contractors make the mistake of believing that they do not have to report income if they do not receive a Form 1099. This is an incorrect belief. While a client is not required to send you a 1099 unless they pay you a total of $600, or more, during the tax year – you are still liable for taxes on the income that you receive. Home business owners who do work for international businesses should also track their income carefully since many foreign companies will not send a 1099 form, regardless of the amount. 
Keep receipts. You should have a paper trail for all business expenses that you incur during the year. This means that you should keep the receipts for any business-related major purchases (new computer, phone system, software, etc.) that you make as well as for your everyday operating expenses (ink for the printer, paper, postage, etc.). If you don’t have a record, then the expense may be challenged if you are audited. 
Self-employment tax. Many first-time business owners forget to set money aside for self-employment tax. When tax time rolls around, they are in for a shock when they realize that they are not only liable for the ordinary tax that an employer would have withheld, but also for the contribution an employer would have made towards Social Security and Medicare. Don’t let self-employment tax surprise you. Start saving for it now.

The United States government actually provides a number of resources for small business owners and the self-employed. Some of the better ones include:

The IRS’s one-stop resource – There’s a lot of links, and the information can seem overwhelming at first. If you stick with it, however, you can probably find the answer to many tax questions here. 
The U.S. Small Business Association – I’d especially like to highlight the Small Business planner, which is great for new businesses, and the Local Resources link. 
Business.gov – The official link to government regulations, information, and services designed especially for businesses. In particular, check the section with Small Business Guides.

With a little preparation and planning, most new business owners learn to manage the accounting aspect of their business even if their background is NOT in accounting.

Laura Spencer is a web-based freelance writer and blogger with over 18 years of professional writing experience. You can learn more about Laura at WritingThoughts, or you can catch up with her at Work From Home Momma or Business and Blogging.

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Can I Write-off my Cellphone as an Expense

Mar 28, 2008

Like all of you I would guess, I use a cellphone as my main phone for my home based business. So, can I write off the cellphone as a business expense?

“The federal tax code says that businesspeople can write off only the parts of their wireless bills that are related to business purpose.” And just how the heck am I suppose to figure that one out?

Here is what the code says:

Count up all the calls you’ve made from your cellphone and all the E-mails you’ve sent from your BlackBerry. What percentage of those calls and E-mails were related to your job alone, and not communications with your family or friends? That’s the share of your phone bill that you can write off. And it’s the case regardless of whether you are an employee with a company-provided phone or you’re self-employed using your own phone for business.

Many in congress are ticked off by this requirement. They believe it is unrealistic and burdensome in a digital age like we live in now. Some members “introduced a House bill last month that would allow the business use of any cellphone or wireless device to be deducted from one’s taxes, regardless of how often it is used for personal reasons.”

With the current language in the code, how many home office warriors would want to take the time to record all of the calls and emails they send with their phones for business purposes? I would venture that only a small percentage. I know I won’t take the time to do so.

Just another example of the overloaded hog-wash we get from our tax code.

Source for Post: U.S. News & World Report

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