Today's Officer MOAA - One Powerful Voice
MAY 2008
Quick Search

 
Online Sections

Magazine


 
Careers

 

 Printable version
E-mail this article to a friend!  Email article
Tweaking Spaces

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.

 

 

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.



Copyright © 1997-2008 MOAA