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Lock up home-office deduction without even qualifying

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in Leaders & Managers,Management Training,Small Business Tax,Small Business Tax Deduction Strategies

If you work at a central location—say, a company office downtown—and you take work home on nights and weekends, you typically won't qualify for home-office deductions. Reason: Your home office is not your "principal place of business." The downtown office is.

The good news: You may not realize it, but you can still write off certain expenses connected with your home office.

How? Claim deductions for furniture or business equipment used in your home office. The tax law allows you to deduct those costs, even if you don't otherwise qualify for an official home-office deduction. In fact, you may be able to write off the entire cost this year!

Similarly, if you use part of your home to store products or samples, you may be in line for a home-office deduction. You don't actually need to set up an "office" in your home. Here's the whole story:

Congress loosens up

In general, you can deduct home-office expenses (utilities, insurance, depreciation, etc.) only if you use part of your home "regularly and exclusively" as either (1) your principal place of business or (2) a place where you meet or deal with customers, clients or patients in the normal course of business. If you're an employee, the home office must be used for the convenience of your employer.

Congress relaxed the home-office rules a few years ago to let taxpayers deduct home-office expenses if they use the office for administrative or management activities and they use no other fixed location for those activities.

For instance, a sales rep who travels to various business locations may qualify by establishing a portion of his home as a place to perform administrative duties. But, typically, employees are prevented from deducting home-office expenses if they use a regular business location.

Three 'backdoor' paths to a deduction


Our advice:
Employees shouldn't throw in the towel just yet! While you likely don't qualify for regular home-office deductions, you can still deduct supplies, equipment, furniture, etc. you buy as a company employee.

Also, you can take the Section 179 expensing deduction for equipment purchases that normally must be depreciated over several years. In most cases, that lets you deduct the entire cost (the limit for 2004 is $102,000), subject to the 2 percent-of-adjusted-gross-income restriction for unreimbursed employee business expenses.

Here are two other ways to deduct expenses for a nontraditional home work space:

1. Deduct storage space. Maybe you use a spare bedroom to store products that you sell on the road. The tax law permits you to deduct expenses attributable to that storage space if your home is the sole fixed business location. That deduction was recently expanded to include the storage of samples as well as actual products.

2. Deduct separate structure. If you perform business activities in a separate structure on your property (a detached garage, backyard shed, etc.), you can deduct home-office expenses attributable to the building's business use. The separate structure does not need to be your principal place of business or a place where you meet customers.

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