On Tue, 20 Aug 1996, Timothy C. May wrote:
At 5:54 PM 8/20/96, Mike McNally wrote:
Sure, but clearly that's not exclusively the case. (Amazingly enough to some might be the fact that my for-work e-mail volume far exceeds my not-for-work volume.) Hopefully I haven't brought too much shame to my employer.
In any case, with the IRS it's often less a matter of common sense than what they happen to decide is The Law. Witness the changes in laws about what constitutes a "home office". Currently, if you're (let's say) a freelance plumber who maintains a legitimate office ...
Caveat: I'm not a defender of income taxes, of course. Nor am I a defender of the IRS.
However, on the "home office" situation, most of the examples I encounter, in talking to friends, are clearly scams to save a thousand bucks (or less) on their tax returns. Most of my friends who try to deduct a room in their house because they've put their computer there are clearly not using "20%" or "25%" or whatever of their house as a business.
For those who really do actually use a room in their home for building things, for meeting with clients, for operating a home business of some sort, then I think the IRS will have no problems allowing it. (If the subject even comes up, in an audit. There are some reports that attempting to declare a home office increases ones chances of being audited....)
As the saying goes, consult a competent expert. A few books detail the expected amount of work that must be done in a "home office," and whether one is likely to qualify.
As one who has regularly maintained a home office for many years, there are a couple of points on the above issue that should be made. First, the stories about increased audits are true. This is one of the "red flag" items on Schedule C that the IRS looks for. If the types and amount of deductions taken for the space utilized evens smells like there is possible overlap with the interest deduction for the mortgage, it gets kicked out for review. This does not mean you get a letter or a phone call, but none the less, the more interest there is in the return the greater the chances for a tango downtown. Schedule C has been a target for many years(especially since HB 1706) went to law concerning contract employee status vs consulting and the famous 20 point list et al. I had a 3 hour conversation with a regional supervisor of the IRS about this list and the impossiblity of any business (even one the size of IBM) and/or person qualifying as a contractor/consultant on all 20 points. He informed my unoffically that the litmus test centers around a majority of the conditions being satisfied of which one of the important ones is a home office, else a consultant is (for tax purposes) a contract employee and gets raped in both directions. You can't deduct for business expenses because you are technically an employee of the client, plus you have to pay the higher rate of self employment (15.16% or some such non-sense). Fun... For the plumber that works "offsite" as well as the consultant, the home office is a legitimate deduction so long as they can prove that they set their own schedule and hours, have more than one "client", and generally operate as a "business". This usually means registering the business address at the residence, business license, checks, etc. and setting aside the workspace necessary to accomplish the adminstrative tasks to keep the business running. Taking a picture of the office helps alot, if there are questions about the legitimacy. As for the closet consultant who looks for a cheap fast deduction, I have zero sympathy if they get caught. If it isn't legitmate, it isn't worth the risk. It will catch up with you. Fascist state or not, these are the rules of the game: Declare everything. Deductions are negotiable.
As one data point, I have derived nearly all of my income over the past 10 years from investments. And yet the "work" needed to be done on my computer is such a tiny fraction of my overall use of it that I don't even try to write off my various computers as "investment expenses." Your mileage may vary.
And I certainly have not tried to write off a room in my house as a home office. (As it happens, I need few of the "office" resources, so I have my PowerMac and 17" monitor sitting beside my recliner in the family room of my house, where I can lie back, log in, and bliss out in cyberspace.)
--Tim May
Again the deduction and the risk involved in taking it depends on the situation. If you are investing and/or running the numbers on the market, then there may not be enough there to make it worth your while. I have a client of mine who grosses 7+ figures - net from his commodities, and all he does is take the losses and never expenses anything else. There is no need to, as it's such a small part of his income as to make it ridiculous.