Tax Question! Home office Deduction

Discussion in 'Business Operations' started by drsogr, Feb 2, 2005.

  1. drsogr

    drsogr LawnSite Bronze Member
    Messages: 1,275

    I know, I know, ask an accountant. Please do not respond and tell me to ask an accountant! I have a simple question, but one I can't find an answer to! I have searched far and wide, and have not found the answer. For you home office deduction you are supposed to take the office sq. feet deducted by the total number of square feet to get that all important percentage. My question is, how is "total number of square feet" dictated? Does this include non-livable space such as garages? Unfinished space such as basements? I am just curious. I am doing my own taxes and later will consult an accountant. I want to know about the tax process, and I have extra time to learn about it.

  2. tonygreek

    tonygreek LawnSite Gold Member
    Messages: 3,915

    oh, c'mon... i found it on the first try! it's easy. you just cram every relevant word you can think of into the google search field and you get your answer.

    just messing with you.
    it's living space, which tosses the garage. now, talk to your accountant on this one (there, i said it...) because if you use your garage for equipment, you might get some more relief. the counter to that strategy is that i do believe that if you were audited, any non-work-related items in the deducted space can get the entire space tossed out of the deductions. obviously, a garage would be difficult, as were that guest room slash den you use for the home office. it wouldn't pass the smell test.

    here's the irs file on the topic:
  3. drsogr

    drsogr LawnSite Bronze Member
    Messages: 1,275

    I did read that publication, but I did not find it to be real clear cut. Imagine that, I government publication that is kryptic! I kind of figured that the garage did not have to be included in the total square feet, unless it actually benefited your percentage. I am still unclear on unfinished basements or partially finished. Anyone who can shed some light on that would be appreciated.
  4. MMLawn

    MMLawn LawnSite Gold Member
    Messages: 3,569

    It's actually real simple. IF the sq footage of the basement is Counted on your real estate appras of your home as "living area",in other words if you were selling your home would that space be counted as heated/cooled living space, then it counts toward the total sq footage. If not then it doesn't. The basic test if you don't know for sure is, is it heated and cooled? If so then yes it would probably count.
  5. Evergreenpros

    Evergreenpros LawnSite Bronze Member
    Messages: 1,154

    An "office" can be comprised of:
    1. Actual office space
    2. Restroom
    3. Break area
    4. Pathway to and from office
    5. Storage area(s)
    6. Equipment storage area

    Pretty much anything you use to conduct business.

    (Total "office" sq/ft) / Total square feet = % you can deduct

    You'll have to play with the numbers to see what benefits you the most. Just remember the "reasonable" rule.
  6. GreenQuest Lawn

    GreenQuest Lawn LawnSite Senior Member
    Messages: 822

    They were talking this issue on the radio the other day with a tax consultant.

    Home office deductions happen to be one of the biggest red flags for the IRS when they look for who to audit.

    The savings are usually small and are they really worth the extra exposure to the government.

    When you sell your house you will have to pay capital gains tax on the portion you depreciated for the office.

    I know BOTH accountants I have had over the years did not reccomend it in the least.
  7. tonygreek

    tonygreek LawnSite Gold Member
    Messages: 3,915

    i'm 99% sure that the irs got rid of the capital gains issue for tax year 2004.
  8. captaingreen

    captaingreen LawnSite Senior Member
    Messages: 471

    So what is the average % deduction for office in home? What is high, what is low in your opinions? Mine came out to 26% no fudging, I double checked with the builders map of our home.
  9. lawnman_scott

    lawnman_scott LawnSite Fanatic
    Messages: 7,547

    mine is about that. And the savings arent "small" either.
  10. drsogr

    drsogr LawnSite Bronze Member
    Messages: 1,275

    Why not use it? If its a legitimate deduction take it. I plan on taking every deduction that they give me. If they want to audit me, audit me! I am not trying to hide anything, I am just trying to take advantage of every tax advantage I have. If they see you are a landscaper, chances are, they are going to realize that you work from your home. Its all of the idiots that have a "hobby business" that they are tracking down!

    One thing that you can do to help to not get auditted is to send a picture of your "home office" in with your tax return.

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