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Tweaking
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By Marilyn Pribus
August 2004 |
Make room for a business office where you’ll feel right at home.
More and more military people and their spouses are becoming full-
or part-time home-based entrepreneurs. And you might be one of those
ramping up for a post-military business, a spouse pursuing a
moveable career, or a retiree looking to augment your retirement
check.
All too soon, however, it’s clear that working at the kitchen table
with the computer in the family room and your files atop the freezer
is a recipe for inefficiency and frustration.
Time for a home office! But where?
Finding office space
The most popular home office space is a spare bedroom. If you
sometimes have guests, consider a desk that can be closed to conceal
your computer, file cabinets that can double as bedside tables, and
a wall bed that, when folded up, shows nothing but a decorative
panel or painting.
An alternative is the living room. It’s often near the front door—desirable if you plan to invite clients to your home—and since it
is usually the largest room in the home, it lends itself to being
easily divided by partitions or bookshelves. The dining room, which
is often near the front door, also could provide a good spot for a
home office.
If neither of those spaces is usable, another approach is to convert
a garage, patio, porch, or attic. This might entail considerable
expense because to make the space comfortable, you might need to
install windows, wallboard, or floor covering. You even might need
to provide heat, air conditioning, electrical wiring, or power
outlets.
In addition, attics often require the addition of dormers or
skylights. Access also can present a problem because stairways take
a lot of floor space. Spiral or pull-down stairs can be installed,
but then moving in furniture and equipment can be difficult. Always
check with local codes to see if a building permit is required
before embarking on any of these major space changes.
In a pinch even a walk-in closet or storage room can become an
office. A skylight or light tube can brighten a windowless space and
scaled-down furnishings can make it appear less cramped.
Furnishing your office
You generally will need a desk and chair, computer, printer, fax
machine, and storage. The major complaint about home offices regards
space—there’s never enough. Remember that while your space doesn’t
all have to be in the same room, it’s more efficient if it is. Here
are some other pointers:
- Look the part. A professionally furnished office will make you
feel more business-like. Consider a consultation with a professional
office planner who can design a layout to maximize your
productivity. Some office furniture stores provide this service on a
complimentary basis when you purchase from them.
- Sit pretty. The key to office comfort is a chair that fits you
perfectly. Test-drive a number of chairs to find one that is just
right for you—and don’t skimp!
- Shop smart. If money is tight, do some sharp shopping once you
have that good chair. Set a door atop two low file cabinets to serve
as a desk. Check out garage and estate sales, discount warehouses,
classified ads, and online listings if you are in a city with
Craig’s List. (http://craigslist.org). Consider floor models or
“as-is” items with minor dents or scratches.
- Be a decorator. Today’s unfinished furniture includes office
items. You can either unify unrelated pieces of furniture with
matching paint or simply call your office “eclectic.” Hang pleasing
artwork on your walls—whether a serene vista or a dynamic splash
of color.
- Be bright. Be sure you have good lighting for all your work
surfaces and ambient light about the same level as your computer
monitor.
- Go up the walls. To expand usable space, use wall units for
storage above and below the desk. Slender shelves can fit behind a
door and shelves a foot or so below the ceiling are useful for
seldom-used items.
- Stay mobile. In really tight spaces, opt for desk and file units
on castors so they can be stored out of the way. Fold-up tables can
supply the necessary work surfaces.
- Get the best computer setup you can afford.
If you’re not
computer savvy, consult someone who is to get the correct hardware
and software. Dell offers MOAA members a 10 percent discount for
computers ordered online, built to your specifications and delivered
to your door. Computer technology is refined continually. Check out
today’s much-slimmer monitors, wireless keyboards, and
multi-function units combining fax, printer, and copier. And
definitely install a surge suppressor.
- Have a separate business phone number. Family members will know
not to answer your work phone, and voice mail can take messages when
you are busy or out of the office. Many home-office people are
installing DSL lines that can handle computer and voice signals
simultaneously. This service isn’t available universally, but it’s
well worth researching.
- Portability. Unless you are positive you’ll never move again,
choose modular units that can be transported and reconfigured,
rather than built-ins.
Remember, whether or not you take a tax deduction your home office,
the furnishings and equipment are deductible if you use them
exclusively for business. With new tax laws, items up to $100,000
may be deducted the same year they are purchased rather than over
their “lifetime.”
Freelance writer Marilyn Pribus, a frequent contributor to MOAA
publications, is an Air Force wife. She has tax deducted her home
office in several states while her husband was on active duty and at
their Sacramento, California, home since his retirement. |
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Sidebar: |
Tax considerations for a home office
The Internal Revenue Service (IRS) has a reputation for close
scrutiny of home-office tax deductions. In fact, this red-flag
perception is so pervasive that some taxpayers with perfectly valid
deductions refuse to taken them for fear of triggering an audit.
This makes no sense to CPA Twyla Buzarellos, a Sacramento, Calif.,
tax preparer who deals with home-based businesses. “Legitimate
deductions can make a nice difference at tax time,” she says.
Regulations are complex, but if you have valid home-office expenses,
take advantage of them. You have no obligation to pay more taxes
than required by law, and the IRS explains its rules clearly in
Publication 587: Business Use of Your Home, which you can find at
www.irs.gov.
The IRS says your office, with some minor exceptions, must be your
principal place of business and used exclusively and on a regular
basis for your business, not just for a profit-making activity such
as buying and selling personal stocks.
“Regular” means use that’s more than occasional or incidental.
“Exclusive” means no personal use allowed. For example, a dining
room used for meeting clients during the week and family meals on
weekends is not eligible for the home-office deduction. (One
exception has to do with areas used for the storage of inventory.)
An office in a separate room or building is easily identifiable to
an auditor’s eye. Still, space that is clearly demarcated by
partitions or moveable walls is acceptable. You must calculate the
area of your office space as a percentage of your total living area.
(There is tax software available that does this for you.)
If you qualify for a home-office deduction, you must complete IRS
Form 8829. For self-employed persons, some usual Schedule
A-deductible items such as mortgage interest, insurance, and
property taxes are deducted on Form 8829 in proportion to the
business area of your home. (This reduces Schedule C income, hence
your Social Security tax, which is at a high rate for self-employed
persons. The remaining percentage of each deduction is reported on
Schedule A. Tax software calculates this automatically.)
In addition, some ordinarily non-deductible items such as utilities,
rent, repairs to the home, or the installation of a security system
might be deductible, again, pro rata. If you own your home, you
might depreciate the home-office area, though this might lead to tax
complications when you sell the home. Consult a tax specialist about
this.
Other office expenses, such as a computer used for business (other
family members can’t play games or cruise the Internet), postage,
mailers, software, a new rug, and office furniture are deductible.
In addition, while your home phone line is never deductible as a
business expense, a second line is. (Long distance business calls
are always deductible, so keep an accurate log.)
“Expenses must be deducted in a certain order,and expenses for a
home office can never be used to create a Schedule C loss,”
Buzarellos says. In other words, while some business costs could
lead to a loss on your Schedule C—which would reduce your bottom
line on Form 1040—home-office expenses might reduce your Schedule
C income to only $0. Undeducted home-office expenses, however, may
be carried over to the next tax year.
The IRS generally has three years to audit your return—or longer
in the case of suspected fraud or criminal activity—so keep
impeccable records. If you move, Buzarellos suggests taking pictures
of your home office. “If an audit comes up later,” she says, “a
picture is worth a thousand words.”
If you have never deducted a home office, MOAA recommends consulting
a tax professional. If you prefer to do it yourself, tax return
software such as TurboTax will walk you through the required forms. |
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