Home Office Writeoffs? at DVinfo.net

Travis Cossel · February 6th, 2006, 10:34 PM

I've been working from a home office for years now, and every year I ask my accountant about writing off the home office space. She always insists that it won't be worth it, but I'm having a really hard time swallowing that.

Do any of you have home offices and do any of you write off your office spaces on your taxes? What are the benefits and disadvantages?

I just get the feeling my accountant is avoiding work and not looking out for my best interests, but I could be wrong.

Don Bloom · February 7th, 2006, 07:01 AM

find a new accountant. I've never had anything but a home office and while many years ago it was almost more work than it was worth to write it off (or find an accontant that would) today there are millions if not 10s of millions of people that work from home and believe me it is well worth it come tax time.
I own my home but the same applies if you rent (but see a GOOD accountant first) I can deduct from my mortage the amount proportioned out for the % of my home-there is a limit of course but I don't remember what it is (thats why I have an accountant) so say my house is 2000 sq ft and I use an "office" that is 200 sq ft-10 percent of my mortgage, my electric, my gas or heating oil are all part of your office overhead which makes it deductible. Say your rent or mtg is just $1000 per month and the utilities are $25.00 per month-together thats $12300.00 for the year-10% of that is $123.00- off the top.
Doesn't seem like a lot but of course I just made these number up-I know for my self my home office deduction is "quite a bit more" and over the years has added up nicely.
I'm not an accountant nor a tax expert but I do have someone who is and over the years he looks for every legitimate deduction he can find and if he ever told me that my home office wasn't worth deducting, I'd find me a new guy to do my work. But thats just my opinion.
Don

Craig Terott · February 7th, 2006, 07:41 AM

If you claim a home office deduction aren't there tax implications when you sell your home? You'll owe tax on that percentageof your home when you sell? Maybe this is what your accountant meant by "not worth it."

Boyd Ostroff · February 7th, 2006, 08:05 AM

My accountant has advised me against doing this, and his counsel has always been good for me personally. For one thing, he says that these deductions are very carefully scrutinized by the IRS because there are a lot of fraudulent claims. He feels that it increases your likelihood of being audited. Of course your situation may be completely different. If you do writeoff your home office then I suspect the key will be finding a way to document that it's used solely for business.

You need to pick an accountant that you trust who understands you and your business. Then follow their advice... or if you don't like the advice, find another accountant :-)

Don Bloom · February 7th, 2006, 08:45 AM

Boyd,
You are right about possibly being scrutinized more carefully and yes, each and every situation is different however my advise to Travis is to talk to an accountant who may be better versedin the home office deduction.
25 years ago while running my home office I was audited but the proof was in the receipts and pictures. AAMOF after the audit the folks at the IRS suggested I wasn't taking a large enough deduction due to the size of the office space I had in my home at the time. One of the biggest keys to HO deduction is that it must be a seperate room not the dining room or kitchen.
However every one is different and again I suggest an account who can look at ones business-income VS outgo, expenses, overhead etc and make a determination from that. Since that audit 25 years ago I am always careful about deductions but the home office for me at least is a wonderful thing-my office is down the hall and to the right-close to the bathroom, kitchen and I can even take a break and watch TV, it's a wonderful thing ;-)
Travis, if you're not sure about what your accountant is suggesting then talk to someone else and get a 2nd opinion. As for implications when selling the home, well when I sold my last home prior to this one, I had no implications but its possibly because I bought a more expensive home but it's also possible that the implication may be when you sell and downsize - the carryover from year to year for the depreciation might get you.
And that's why I have an accountant. :-0
Don

Travis Cossel · February 7th, 2006, 03:12 PM

Thank you everyone for the replies. I think I will talk to another accountant to get a 2nd opinion. My wife also has a home office (photography) and we have a theater room we built specifically for showing off my wedding videos to clients, so it sounds like maybe it might be a good idea for me.

I really hate the idea of getting audited, not because I've done anything wrong, but because I hear it's a huge hassle. But if it's going to save me money, maybe it's worth the risk.

I'd love to hear some more opinions from those of you who work from a home office.

Boyd Ostroff · February 7th, 2006, 03:21 PM

Quote:

Originally Posted by Travis Cossel

we have a theater room we built specifically for showing off my wedding videos to clients

I can't imagine waving a bigger red flag than that! Is there some way to document that it's used only for business purposes? I suppose it would have to do with what the room looks like. But since "home theatres" are popular luxury items these days it seems like the kind of thing that would raise an agent's eyebrows...

Travis Cossel · February 7th, 2006, 03:36 PM

Quote:

Originally Posted by Boyd Ostroff

I can't imagine waving a bigger red flag than that! Is there some way to document that it's used only for business purposes? I suppose it would have to do with what the room looks like. But since "home theatres" are popular luxury items these days it seems like the kind of thing that would raise an agent's eyebrows...

Yeah, I figured that would be a big red flag. The truth of the matter is that the theater is only used for personal movie watching during the holidays when family is around (as sad as that is). But other than a display area that showcases some of our dvd packaging and a sign for my business, I don't know how else we could 'prove' it's use. Might not be worth claiming.

Our other 2 home offices would be easy, though, since they are totally separate rooms that are ONLY used for business.

:EDIT:
On another note, how did you guys go about selecting a good accountant? I'm not sure what to look for or ask really?
:EDIT:

Chris Hurd · February 7th, 2006, 04:30 PM

Moved from Weddings to Business for better exposure. Great thread, by the way.

Boyd Ostroff · February 7th, 2006, 04:31 PM

In my case, I guess I was lucky. I met mine when he was a volunteer working backstage at the Opera Company here many years ago (his "real" job was an accountant for a big local institution). After doing my personal accounting for several years, the Opera Company had an opening which he applied for, and to make a long story short, he's our CFO now as well as my accountant - and a good friend also.

But aside from getting lucky, I think the best way to hire a professional is through recommendations from others in your same line of business. Ask around and see who does your friends' taxes, then arrange to meet them and see what you think.

Travis Cossel · February 7th, 2006, 04:37 PM

Chris,

Thanks for the move. I didn't even realize there was a business section. lol

Jim Michael · February 7th, 2006, 05:40 PM

Quote:

Originally Posted by Travis Cossel

Thank you everyone for the replies. I think I will talk to another accountant to get a 2nd opinion. My wife also has a home office (photography) and we have a theater room we built specifically for showing off my wedding videos to clients, so it sounds like maybe it might be a good idea for me.

I really hate the idea of getting audited, not because I've done anything wrong, but because I hear it's a huge hassle. But if it's going to save me money, maybe it's worth the risk.

I'd love to hear some more opinions from those of you who work from a home office.

If your company is a corporation the corporation might pay rent for use of the office area and that is a legitimate business expense. However, now you have the income for the rent in your personal taxes and even though you can write off things like depreciation and utilities to offset the income, you still wind up with a mess to deal with at tax time, and especially when you sell the house (if depreciation was claimed). So, add in the cost of the accountant's time (or the value of your time) for the extra tax management to your analysis.

Travis Cossel · February 7th, 2006, 05:53 PM

My company is an LLC, so it is still filed within my personal taxes. Because of that I don't think paying rent to myself will really help, right?

It sounds like it's just a tossup for the amount of hassle you want to deal with. Not claiming the office spaces results in less hassle, but claiming them could reduce my overall tax payment (I wish I knew how much). Either way I'm paying an accountant, so that doesn't really matter I guess.

Don Bloom · February 7th, 2006, 06:55 PM

When I went looking for a new accountant (my old guy retired an moved-damn, I was pickin' his pocket on the golf course) I went to a few freinds who own businesses and asked for recommendations-got a good guy -now 5 years-but he's a much better golfer than the old guy so I don't get much of my yearly fee back from him as the other guy :-(
Don

Jim Michael · February 7th, 2006, 07:34 PM

Quote:

Originally Posted by Travis Cossel

My company is an LLC, so it is still filed within my personal taxes. Because of that I don't think paying rent to myself will really help, right?

It sounds like it's just a tossup for the amount of hassle you want to deal with. Not claiming the office spaces results in less hassle, but claiming them could reduce my overall tax payment (I wish I knew how much). Either way I'm paying an accountant, so that doesn't really matter I guess.

I'm not an accountant and only related some info that arose from a discussion with my CPA, so don't really know the implications for an LLC. You should be able to do a reasonable back-of-the-envelope estimate of the tax savings. For corps, the tax rate is 15% on the first 50k (and 6% for my state), so if I know the amount of a deduction the resulting net in real money is about 20%. So, if my office was 10% of the house and the utilities etc. ran $4k/yr, I might get to deduct about $400/year, which for a corp might net $80 in tax savings.

February 6th, 2006, 10:34 PM	#1
Travis Cossel Inner Circle Join Date: Jan 2004 Location: Miami, FL Posts: 2,933	Home Office Writeoffs? I've been working from a home office for years now, and every year I ask my accountant about writing off the home office space. She always insists that it won't be worth it, but I'm having a really hard time swallowing that. Do any of you have home offices and do any of you write off your office spaces on your taxes? What are the benefits and disadvantages? I just get the feeling my accountant is avoiding work and not looking out for my best interests, but I could be wrong. __________________ Black Label Films www.blacklabelweddingfilms.com

February 7th, 2006, 07:41 AM	#3
Craig Terott Major Player Join Date: May 2005 Location: Glendale, AZ Posts: 691	If you claim a home office deduction aren't there tax implications when you sell your home? You'll owe tax on that percentageof your home when you sell? Maybe this is what your accountant meant by "not worth it." Last edited by Craig Terott; February 7th, 2006 at 09:09 AM.

February 7th, 2006, 03:12 PM	#6
Travis Cossel Inner Circle Join Date: Jan 2004 Location: Miami, FL Posts: 2,933	Thank you everyone for the replies. I think I will talk to another accountant to get a 2nd opinion. My wife also has a home office (photography) and we have a theater room we built specifically for showing off my wedding videos to clients, so it sounds like maybe it might be a good idea for me. I really hate the idea of getting audited, not because I've done anything wrong, but because I hear it's a huge hassle. But if it's going to save me money, maybe it's worth the risk. I'd love to hear some more opinions from those of you who work from a home office. __________________ Black Label Films www.blacklabelweddingfilms.com

February 7th, 2006, 04:30 PM	#9
Chris Hurd Obstreperous Rex Join Date: Jan 2001 Location: San Marcos, TX Posts: 27,368 Images: 513	Moved from Weddings to Business for better exposure. Great thread, by the way. __________________ CH Search DV Info Net \| 20 years of DVi \| ...Tuesday is Soylent Green Day!

February 7th, 2006, 04:37 PM	#11
Travis Cossel Inner Circle Join Date: Jan 2004 Location: Miami, FL Posts: 2,933	Chris, Thanks for the move. I didn't even realize there was a business section. lol __________________ Black Label Films www.blacklabelweddingfilms.com

February 7th, 2006, 07:01 AM	#2
Don Bloom Inner Circle Join Date: Jan 2003 Location: Chicago, IL Posts: 6,609	find a new accountant. I've never had anything but a home office and while many years ago it was almost more work than it was worth to write it off (or find an accontant that would) today there are millions if not 10s of millions of people that work from home and believe me it is well worth it come tax time. I own my home but the same applies if you rent (but see a GOOD accountant first) I can deduct from my mortage the amount proportioned out for the % of my home-there is a limit of course but I don't remember what it is (thats why I have an accountant) so say my house is 2000 sq ft and I use an "office" that is 200 sq ft-10 percent of my mortgage, my electric, my gas or heating oil are all part of your office overhead which makes it deductible. Say your rent or mtg is just $1000 per month and the utilities are $25.00 per month-together thats $12300.00 for the year-10% of that is $123.00- off the top. Doesn't seem like a lot but of course I just made these number up-I know for my self my home office deduction is "quite a bit more" and over the years has added up nicely. I'm not an accountant nor a tax expert but I do have someone who is and over the years he looks for every legitimate deduction he can find and if he ever told me that my home office wasn't worth deducting, I'd find me a new guy to do my work. But thats just my opinion. Don

February 7th, 2006, 08:05 AM	#4
Boyd Ostroff Wrangler Join Date: Dec 2002 Location: Mays Landing, NJ Posts: 11,802	My accountant has advised me against doing this, and his counsel has always been good for me personally. For one thing, he says that these deductions are very carefully scrutinized by the IRS because there are a lot of fraudulent claims. He feels that it increases your likelihood of being audited. Of course your situation may be completely different. If you do writeoff your home office then I suspect the key will be finding a way to document that it's used solely for business. You need to pick an accountant that you trust who understands you and your business. Then follow their advice... or if you don't like the advice, find another accountant :-)

February 7th, 2006, 08:45 AM	#5
Don Bloom Inner Circle Join Date: Jan 2003 Location: Chicago, IL Posts: 6,609	Boyd, You are right about possibly being scrutinized more carefully and yes, each and every situation is different however my advise to Travis is to talk to an accountant who may be better versedin the home office deduction. 25 years ago while running my home office I was audited but the proof was in the receipts and pictures. AAMOF after the audit the folks at the IRS suggested I wasn't taking a large enough deduction due to the size of the office space I had in my home at the time. One of the biggest keys to HO deduction is that it must be a seperate room not the dining room or kitchen. However every one is different and again I suggest an account who can look at ones business-income VS outgo, expenses, overhead etc and make a determination from that. Since that audit 25 years ago I am always careful about deductions but the home office for me at least is a wonderful thing-my office is down the hall and to the right-close to the bathroom, kitchen and I can even take a break and watch TV, it's a wonderful thing ;-) Travis, if you're not sure about what your accountant is suggesting then talk to someone else and get a 2nd opinion. As for implications when selling the home, well when I sold my last home prior to this one, I had no implications but its possibly because I bought a more expensive home but it's also possible that the implication may be when you sell and downsize - the carryover from year to year for the depreciation might get you. And that's why I have an accountant. :-0 Don

February 7th, 2006, 04:31 PM	#10
Boyd Ostroff Wrangler Join Date: Dec 2002 Location: Mays Landing, NJ Posts: 11,802	In my case, I guess I was lucky. I met mine when he was a volunteer working backstage at the Opera Company here many years ago (his "real" job was an accountant for a big local institution). After doing my personal accounting for several years, the Opera Company had an opening which he applied for, and to make a long story short, he's our CFO now as well as my accountant - and a good friend also. But aside from getting lucky, I think the best way to hire a professional is through recommendations from others in your same line of business. Ask around and see who does your friends' taxes, then arrange to meet them and see what you think.

February 7th, 2006, 05:53 PM	#13
Travis Cossel Inner Circle Join Date: Jan 2004 Location: Miami, FL Posts: 2,933	My company is an LLC, so it is still filed within my personal taxes. Because of that I don't think paying rent to myself will really help, right? It sounds like it's just a tossup for the amount of hassle you want to deal with. Not claiming the office spaces results in less hassle, but claiming them could reduce my overall tax payment (I wish I knew how much). Either way I'm paying an accountant, so that doesn't really matter I guess. __________________ Black Label Films www.blacklabelweddingfilms.com

February 7th, 2006, 06:55 PM	#14
Don Bloom Inner Circle Join Date: Jan 2003 Location: Chicago, IL Posts: 6,609	When I went looking for a new accountant (my old guy retired an moved-damn, I was pickin' his pocket on the golf course) I went to a few freinds who own businesses and asked for recommendations-got a good guy -now 5 years-but he's a much better golfer than the old guy so I don't get much of my yearly fee back from him as the other guy :-( Don