Home office and the IRS

R

RAI J.

New member
I want to use a room in my apartment as a home office. What does the IRS require? Am I required to show that I've made money already, or is just trying to make money good enough?
 
First and foremost the IRS requires that this room be used for nothing personal. If you are starting a business you have an amount of time (5years?) to show a profit or the IRS will consider it a hobby.
 
The home office deduction is a red flag for the IRS. Are the savings worth the risk of being audited? Most importantly talk to a CPA before making a decision.
 
RAI J. said:
I want to use a room in my apartment as a home office. What does the IRS require? Am I required to show that I've made money already, or is just trying to make money good enough?
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I work from home and do indeed write off the square footage and applicable phone lines, etc. But I can't imagine a scenario where you'd be able to write something off on a business that is not A) one you've profited from or B) your only business dealings.

So, personally, if I was in the business of real estate and set up my home office, bought call lists and leads and had phone lines put in, etc. I would write all of that off regardless of whether or not I made a profit.

But what am I deducting from? If I didn't make any money than I can't be taxed on anything.

If what you're asking is "I have a 9-5 that I'm W2'ed on but I'd like to also be self-employed on my time off and work from home," then I think you can squash that plan. If that was the case a person could write off their game room because they're in pursuit of being a professional gamer, or they could write off their bedroom because they're a practicing porn star. ;)

Wait until you've made a profit and then write it off.

Also, I don't know what kind of work from home business you're talking about, but in most cases, if you're not being W2ed by someone else, you're better off starting an LLC (about 1K with atty fees) and W2ing yourself.
 
milksac said:
The home office deduction is a red flag for the IRS. Are the savings worth the risk of being audited? Most importantly talk to a CPA before making a decision.
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It's only a red flag if you're saying the home office isn't directly responsible for your W2ed income.

So, for instance, if you're a realtor and you have business lines, etc at home, the IRS is fine with that so long as it pertains specifically to your actual job.

The red flag comes in when you're W2ed from Kmart and you're writing off a bedroom in your house that's dedicated to arts and crafts and your online strip show.
 
milksac said:
The home office deduction is a red flag for the IRS. Are the savings worth the risk of being audited? Most importantly talk to a CPA before making a decision.
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The above is all correct, but millions and millions of people legally and successfully claim home offices nowadays - a vastly greater number than in the past, now that the internet/teleconfrencing age has come to maturity. All one needs to do (IMO, and no, I am not an accountant) is to make sure that the office in question is legitimate, and meets the qualifications as set out by the IRS.

The main purpose of that (as I understand it) is, obviously, to disallow frivolous claims - if someone puts a work computer in a home theater room and does occasional business emailing and phone calls there it's *not* a home office. But, particularly if you are an independent contractor, if you have a specified room or area in your home that is exclusively used for business (fundamentally - since conventional offices can *sometimes* be used for personal activities too, like talking to your kids or ordering tickets for a ball game), you can deduct the related expenses. If you're not an independent contractor/self employed etc. it's stickier, but again - many people work at home full-time as employees for an outside company. To deny them the right to deduct legitimate costs of doing business there would be unfair, and fairness, at least in theory, is the guiding principle behind all tax laws.

Regarding profitability, you do need to show some, yes, but you also get some time to do so. Last time I checked (long ago) it was three years. Maybe it's longer now. In any case though, again, with fairness being the objective, if you *aren't* showing related earnings, and eventually enough of them to offset costs, then you don't have a business. You have a hobby. And you can't deduct those, no mater how much you wish they'd morph into a business, if they haven't done so within a reasonable length of time.

So...yes...be careful, understand the applicable rules, and consulting an accountant is a good idea, but don't be afraid to deduct home office expenses *if they're legitimate*.
 
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