Have a question for you CPAs, or anyone who knows more than I do on the subject...

In the past year, I began working for a small consulting company based out of Atlanta. I, however, am based out of my house in DFW, and simply travel to clients office when not working from the house.

Since this is my first year filing taxes as someone who works from home, I am curious how much I am able to claim. I am a W-2 employee, and the company does have an office in Atlanta, so its not like we are a completely virtual based company. I do have a room specifically used as an office, and have misc. expenses that I do not submit for reimbursements.

Thanks for the help

Read this:

IRS - home office info

Quote:

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1. Regular and Exclusive Use.
You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.

2. Principal Place of Your Business.
You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.

Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:

Your business use must be for the convenience of your employer, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

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If you use that space for anything else, you aren't allowed to take the deduction. (People do, but it isn't kosher.) Also, you might consider the simplified method. It's much easier and you don't need to do much (any) record keeping.

All that said, it's an un-reimbursed employee expense deduction and must 2% of your AGI AND you need to itemize your deductions for you to get any benefit.

There is one "gotcha" to be aware of. if you take advantage of this deduction and the home is later sold at a gain, you will likely have a portion of the gain taxable.

Casey TableTennis said:

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There is one "gotcha" to be aware of. if you take advantage of this deduction and the home is later sold at a gain, you will likely have a portion of the gain taxable.

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This response is not completely accurate and only applies if you attempt to rent your home office. There is another method where you take the defined allowable expenses, multiply them by the percentage of use (office sq-ft / total square ft). This avoids the renting problem mentioned.

As a W2 employee, there are more stipulations than if you were self employed. The deduction is subject to the 2% of adjusted gross income rule. It also has to be regular and exclusive use and the use has to more or less be approved by your employer as being for the employer benefit, not yours.

I have a spreadsheet I could send you if you would like. PM me or put an email address up I can send to.

So, what I said in my post.

Bahahahaha. Yes.

I was really responding to the post before mine... then forgot what yours said when I was distracted by my 1 year old while simultaneously taking a call from my 22 year old senior at A&M.

Surely, I deserve some slack...

BadAzzBohemian said:

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Casey TableTennis said:

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There is one "gotcha" to be aware of. if you take advantage of this deduction and the home is later sold at a gain, you will likely have a portion of the gain taxable.

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This response is not completely accurate and only applies if you attempt to rent your home office. There is another method where you take the defined allowable expenses, multiply them by the percentage of use (office sq-ft / total square ft). This avoids the renting problem mentioned.

As a W2 employee, there are more stipulations than if you were self employed. The deduction is subject to the 2% of adjusted gross income rule. It also has to be regular and exclusive use and the use has to more or less be approved by your employer as being for the employer benefit, not yours.

I have a spreadsheet I could send you if you would like. PM me or put an email address up I can send to.

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depreciate

Thank you all for the help and insight.

BadAzzBohemian - I sent you a PM.

Home office... how do you not fap all day?

Difficult at times. My favorite part is no longer having to catch the evil eyes when leaving "early" at 5:30.

I doubt this is something you want to try to claim. As mentioned earlier, because you are a w-2 employee of a company that allows you to work from home, this home office deduction becomes trickier and more prone to abuse and audit

For him it might not be so hard to defend an audit. Since his employer is not local and he services clients who are, he "must" work from home. They are not providing him with an office from which to work. It's when you work at home for your convenience, while uour employer provides you with an office from which to work that the deduction becomes a problem. At least that's my understanding of it.

Agree 100%.

As long as there is proper documentation it should be fine.

I receive advice from 2 different tax accountants. One says don't do it because it invites an audit. The other says absolutely do it and let the IRS say no.

I am a member of an LLC, and sole stockholder of a corporation, so not a W2 employee.

If you have any visitors to your home office, keep a sign in log and that will strengthen your position.

combat wombat said:

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For him it might not be so hard to defend an audit. Since his employer is not local and he services clients who are, he "must" work from home. They are not providing him with an office from which to work. It's when you work at home for your convenience, while uour employer provides you with an office from which to work that the deduction becomes a problem. At least that's my understanding of it.

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When I was audited, the IRS agent specifically told me that my home-office deductions were the red flags that got me audited. I was a W2 employee with no office as a sales rep. Everything was done by the book, and it ended up costing me way more than if I didn't claim that home office.

In 13 years of practice, I have not seen the home office questioned in an audit yet. It is a legitimate deduction if that is your primary office and your employer does not provide you with an office. No reason NOT to take it.

Guitarsoup - I'm curious about your situation. Photography may have been the flag more than the home office. I've been seeing more and more self employeds with "unusual" professions getting audited lately.

Before I made money as a photographer. I was a W2 manager for a Fortune 400 company based in Georgia, but I worked out of my home in Houston. Rented a two bedroom apartment and used one room exclusively for work space. Everything was on the up and up.

The 2% of AGI number prevents many from being able to use this.

Guitarsoup said:

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combat wombat said:

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For him it might not be so hard to defend an audit. Since his employer is not local and he services clients who are, he "must" work from home. They are not providing him with an office from which to work. It's when you work at home for your convenience, while uour employer provides you with an office from which to work that the deduction becomes a problem. At least that's my understanding of it.

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When I was audited, the IRS agent specifically told me that my home-office deductions were the red flags that got me audited. I was a W2 employee with no office as a sales rep. Everything was done by the book, and it ended up costing me way more than if I didn't claim that home office.

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Guitar...this is intriguing. One of my advisors says to absolutely do it. The other says "pigs get fat and hogs get slaughtered"... meaning to push the limits in other areas because this is a red flag.

Was your home office deduction actually disallowed, and if so, on what grounds? Or did it open the door for an audit that brought other unrelated items under scrutiny that were disallowed?

Did you hire a tax accountant or attorney to defend you?

In some W2 situations, it does seem it could be difficult to make it work.

- Did your employer truly support that you needed this office and that no other office was made available to you (was your employer within traveling distance)?

- If reimbursed by your employer in any way, it goes without saying there cannot be a deduction taken on your personal return.

- If you are married filing jointly and have an AGI of say $200K, this means you would only be able to deduct the amount over $4,000. That makes the deduction less lucrative.

- Did you have an extensive logbook of customers who visited your home office?

- Did you have a separate phone line for the business or did you write off any landline costs?

- As a sales rep, what business activities were conducted in this office?

Guitarsoup said:

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Before I made money as a photographer. I was a W2 manager for a Fortune 400 company based in Georgia, but I worked out of my home in Houston. Rented a two bedroom apartment and used one room exclusively for work space. Everything was on the up and up.

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As a sales rep, I would assume the entire litmus test would be large numbers of meetings with customers occuring on a regular basis (dsily) in your home office and your employer and customer logbook supporting substantiation that most sales calls were done in the home rather than on the road.

I traveled to customer's locations. The room was entirely storage for samples and workspace for order entry. It literally just had garage racks covering all the walls except for a desk. It had no use other than home-office and I had to get a 2br apt because I needed that much extra space specifically for work product. I brought pictures and a floorplan. Wrote off landline that was dedicated fax and used for nothing else. Employer did not reimburse anything including cell phone, gas, housing, car, etc.

Disallowed.

Single. No income other than W2. Income ~60k.

**** the IRS.

Did you represent yourself? Did you appeal? That makes NO sense.

Made the mistake of trying to go it alone. By the time I was audited, I had left the company to try to make it as a photographer, only I was a terrible photographer and no one told me, so I was flat broke.

Guitarsoup said:

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Made the mistake of trying to go it alone. By the time I was audited, I had left the company to try to make it as a photographer, only I was a terrible photographer and no one told me, so I was flat broke.

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I have seen your work... amazing photographer.

Under the circumstances I am not sure having a lawyer or CPA represent you would have mattered.

I am a definite advocate of the taxpayer... not the IRS. In trying to help the OP, here is what I believe the IRS position may have been.

- The IRS pushes for the business entity to deem the home office necessary. Since you no longer worked there, finding someone to support that may have been difficult or impossible. For the OP, maybe getting a letter from your employer deeming the space necessary would help substantiate. This could maybe lead to increased scrutiny for the business.

- The IRS seems to want the business to absorb that expense one way or another rather than a W2 employee. The IRS doesn't want the employer taking advantage of the employee... so, getting the business to deem it necessary for their benefit is a double edge sword.

- I believe the employee being the sole decider on what is deemed necessary doesn't meet the intent of the excerpt that says it has to be for the employer benefit. That way, the IRS can play both sides against each other. If it was in writing that your employer required you to keep an office space for a specific benefit to them (showroom, customer showroom or meeting room), it would likely fly.

- It sounds like the space was used mainly for storage and most actual work happened away from the office. Can't have it both ways. An engineer for instanice would sit in that office 9 hours a day... a sales person... not so much.

- Most apartment leases likely have clauses that you cannot run a business out of your apartment where customers are coming in and out. As a sales or management person, it seems customer contact is a huge portion of the equation.

- Having a second bedroom of an apartment and calling it an office would likely be a stretch... I believe the burden of proof lies with the taxpayer.

- Order entry can happen on the couch. Storage space can be had for $30/month somewhere. The IRS typically does not want W2 employees taking expense deductions that are typically reserved for the business owner.

- If the company provides a laptop for use, that portrays mobility is required and a stationary office is likely not.

I agree that everything was done by the book... and I agree that you dedicated that space for your office and maybe no one ever slept in that space... and maybe you didn't have a single personal item in that space, ever... I believe you should have the right to that deduction if that can be proven. From what I understand, the burden of proof lies with the taxpayer... not the IRS.

There are employers and there are employees. The home office deduction is one of those areas in between the two.

I worry about this myself... I am the business owner. I am not an employee, I am an LLC member.

My home office consists of space completely dedicated to the administrative and sales operations for the company. Our shop is 70 miles away. I do not maintain an office in the shop and I rarely go to the shop. My business records clearly indicate that everything in my home administrative office is owned by the business... not me personally. My main office has a baby grand piano that is a great enhancer to the office setting for customer meetings. It is not owned by the company, therefore, I exclude the square footage of that space.

My server closet is full of equipment owned by the company. A small portion of that is personal use, therefore, I do not include that square footage in the calculation and it is in its own segregated area.

I spend 8 hours a day, 5 days a week minimum in my home office.

The business owners (my partner and I) have a written policy, deeming this space as necessary for the administrative operations of the company.

The computers are desktops and the printers arE large / permanent.

If I were audited, the above information is what I would use to fulfill my burden of proof to the IRS that this is a legit deduction / expense.

The funny part is... I still expect that they would somehow try to deny the expense.

Guitar-

I am very surprised you lost that deduction considering the defense you gave. It sounds like you had an over-reaching agent. If I were representing you, I would have appealed to his manager. Usually that alone will get the agent in line. However, even if that didnt work, I would have appealed that or requested assistance from the taxpayer advocate. It really makes no sense.

In years past the home office deduction was an audit flag, but over the past 10 years or so the IRS has had more and more of its agents work out of their home and their acceptance of the deduction as legit has increased - 20 years ago I had a client that was an independent insurance salesman and he converted his garage to an office - it was not attached to his house and even had its own electric meter, we did everything right and the IRS audited us and disallowed the home office deduction just because they could -

today, as long as the deduction is not unusually large compared to revenue from the business and other business expenses, I do not think twice about taking the deduction - Just stay reasonable and do not try to erase your entire tax liability with this deduction

agdad4x said:

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In years past the home office deduction was an audit flag, but over the past 10 years or so the IRS has had more and more of its agents work out of their home and their acceptance of the deduction as legit has increased - 20 years ago I had a client that was an independent insurance salesman and he converted his garage to an office - it was not attached to his house and even had its own electric meter, we did everything right and the IRS audited us and disallowed the home office deduction just because they could -

today, as long as the deduction is not unusually large compared to revenue from the business and other business expenses, I do not think twice about taking the deduction - Just stay reasonable and do not try to erase your entire tax liability with this deduction

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Great info. Thank you.

gigemhilo said:

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Guitar-

I am very surprised you lost that deduction considering the defense you gave. It sounds like you had an over-reaching agent. If I were representing you, I would have appealed to his manager. Usually that alone will get the agent in line. However, even if that didnt work, I would have appealed that or requested assistance from the taxpayer advocate. It really makes no sense.

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The agent seemed to have an attitude like Judge Dredd. "I am the law and there's nothing you can do about it"

Wish I had the money at the time to pay someone to represent me. I was ****ed over hard and never did anything wrong.

Do you know how some cops have "short man syndrome"? They use the power of the badge to really make life miserable for other people Well, there are IRS agents like that, too. They are real pieces of work. Sometimes they're miserable human beings.

BadAzzBohemian said:

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Agree 100%.

As long as there is proper documentation it should be fine.

I receive advice from 2 different tax accountants. One says don't do it because it invites an audit. The other says absolutely do it and let the IRS say no.

I am a member of an LLC, and sole stockholder of a corporation, so not a W2 employee.

If you have any visitors to your home office, keep a sign in log and that will strengthen your position.

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The OP is a w-2.