Where the inside of my mind leaks onto the screen.

Monday, January 26, 2009

A Little Something for Tax Time

Just in case you're wondering, this is me -- Andrea -- writing this, not my resident tax man. But I've heard this over and over again during Kirk's year as an IRS man, so when I read an article that addressed it today, I thought I'd share.

You probably know people who claim a home office on their taxes. In official tax speak, this is apparently called "business use of home." If you walk into said office, you are quite likely to find that while the person does conduct business there, they are probably not using the space exclusively for business. While most of the tax questions you could think of to ask Kirk draw the answer of "it depends," business use of home is not one of those.

He (and this article here) will tell you that the law is actually very clear on the fact that the space must be used EXCLUSIVELY for business, or as Kirk generally puts it, 100%. Not 99%, but a full 100% for business. That means if you set up a pack-n-play in there for your niece to stay in when your sister comes for a weekend stay, you don't qualify. If you sit in there and read a book because your kids know not to bug you when you're in your office, you don't qualify. And don't just assume, oh the IRS agent won't be able to tell. They're not just going to ask, "Now, you just use this room for business, right?" and take your word for it. They'll ask sneaky little questions throughout the interview to get an honest answer out of you, and you may not even realize you gave yourself up.

According to Kirk, business use of home is one of the most frequently (and easily) disallowed items during an audit. So what do you do? Well, you basically have two options. Either only use your business space for business use, or decide upfront that claiming it probably isn't worth it. If you want more information about the "not worth it" reasoning, talk to Kirk about the issue of reclaiming your office depreciation when you sell your house. That area's a little too technical for me.


Kirk said...

Nice job honey. For those wondering about the depreciation here it is. When you sell your home and you are married filing joint you only have to claim the gain on the sale if it is over $500,000 (there are time issues and some other things but lets now worry about that right now). If you claimed business use of home then you need to re-claim the previous depreciation you claimed on your home as income and pay tax on it.