Archive for the ‘taxes’ Tag

Home Office Part III – How Big is My Deduction?

Originally published in the Cedar Street Times

August 23, 2013

Four weeks ago, I discussed a new simplified option for calculating the home office deduction that is effective for 2013.  Two weeks ago I discussed the rules to qualify for a home office deduction.  In this final installment on home office deductions, we will discuss the standard method of determining your deduction, which will still yield the greatest benefit for most people – especially in high cost localities.  (If you missed the prior two articles, you can find them on my website at

The standard method of calculating your home office deduction is done on a Form 8829 or on tax worksheets.  It typically starts with a square footage calculation of the livable space in your home, and a calculation of the portion used exclusively for your business activity, to determine the percentage used by the business.  You can use a calculation based on the number of rooms in the house if they are similarly sized, but in practice hardly anybody uses this method.

The next step is to gather your expenses and multiply them by the business percentage you just determined.  Add up in separate categories your utilities, water, trash/recycling service, janitorial (house cleaner), repairs and maintenance, homeowner’s or renter’s insurance, and any other recurring expenses used to maintain your house.   If you regularly meet with clients at your house, you can generally do the same for your landscape maintenance expenses as well.

If you rent your home, you add up your total rent and multiply it by the business percentage.  If you own, you apply the business percentage to your mortgage interest and real estate taxes (the balance go on Schedule A).  Some people will throw their internet access fees on the 8829, but often a better deduction is obtained by thinking about actual business use versus personal use, as square footage is not a great metric for internet use.  You could then put that directly on your schedule C if you run a business, or Form 2106 if you are an employee with a qualifying home office.  If you buy furniture or equipment exclusively for your office, that is generally put on a depreciation schedule and often linked directly to your Schedule C or Form 2106 instead of running it through your business use of home form.

The first telephone line into the house is not deductible at all.  A second line could be, however.  But in that case it is typically a dedicated business line, and you would put that on your schedule C or Form 2106 in full to get a better deduction.  Your cable or satellite service is probably off limits for most people since there is such a high degree of personal use and it is an area subject to abuse.  Based on facts and circumstances some people may be able to build a case for part of it – such as a day trader that depends on the financial channels, or if you have a waiting area which clients regularly use to watch television.

If you own the home you need to set up the home and and any improvements on a 39-year depreciation schedule (not 27.5 like a rental home – common mistake) and run depreciation deductions through your business use of home calculation (beyond the scope of this article).  Many people fail to do this thinking it is a choice.  It is not.  There is a use or lose it rule, and you are responsible for depreciation recapture taxes upon the sale of the home whether or not you claimed the deduction.  So you might as well take it!

Facts and circumstances and reasonableness will generally rule the day as an overarching principle to the application of all of these rules.  Technically, if you only painted your office, you can take 100% of the cost into consideration for your business use of home deduction.  On the flip-side, if you painted everything but your office, you shouldn’t really take any deduction.  In practice, records are generally not kept that precisely, and the dollar figures are not that large, so  you often end up applying the business percentage to everything in that category for the year for practical purposes.

Even after calculating the deduction, there is another hurdle you must pass – you cannot create an overall loss on your Schedule C from business use of home expenses with the exception of real estate taxes, mortgage interest, or casualty losses which would be deductible on Schedule A regardless.  If you have a loss, the excess business use of home expenses will get suspended and carried over to a future year when your business is profitable.

Employees have a different hurdle since their home office deduction is an employee business expense which is a miscellaneous itemized deduction subject to a two percent of adjusted gross income floor.  So if their total miscellaneous itemized deductions exceed two percent of their adjusted gross income, then the excess is an itemized deduction, and if their itemized deductions exceed the standard deduction, then they can benefit!

Of course there are many other considerations that can come into play depending on your circumstances such as separately metered properties, or separate structures, multiple offices in the same home, or different homes, a daycare home office, etc.  This article should be enough to give you the gist, but it is always best to consult with a professional to ensure you are complying with the laws as well as getting all the deductions you deserve.

Prior articles are republished on my website at

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

Taxes? I’m in Key West!

Originally published in the Cedar Street Times

April 19, 2013

When this paper hits the newsstands, I will hopefully be far from thinking about itemized deductions, dependent exemptions, and the IRS!  This tax season tended to be compressed for many tax professionals due to the last minute changes by Congress which delayed the IRS releasing many common forms until early March of this year.  Of course we tried to get the information from clients and prepare the returns except for the remaining forms, but it still had an effect of creating additional late night hours!  That is now over, however, and it is time to take a breather!  My wife and I and one-year-old son are headed for the southern-most point in the United States – Key West, Florida.

When I was 16 my family took a trip to Key West, Florida.  My father enjoyed taking us around to go Key lime pie tasting and to show us the sites he was familiar with from his younger days.  My grandfather was an architect in Key West for a number of years and both my uncle and my father were “Conchs.”  This term, derived from the shell of the large sea snail, is affectionately given to anyone born in Key West.

My dad’s aunt, Peggy Mills, also lived on the island.  She was a collector of orchids from all over the world and received special permission to import unusual orchid varieties into her growing gardens.  Over the years she tore down over a dozen buildings in the heart of Key West to make room for her gardens and then made them open to the public.  She also imported special bricks and four “tinajones” from Cuba.  The tinajones are basically large clay pots weighing about 2,000 pounds each and were used for rainwater collection by Spanish settlers   They are the only ones in the United States.  She was friends with President Batista of Cuba at the time, which was her connection to obtain these artifacts.  When she passed away in 1979, my grandfather sold the property with the pledge from the new owners that the gardens would remain.  Although the property has changed hands several times, you can now stay at The Gardens Hotel, arguably the nicest spot in Key West!

Perhaps we can get a tour when we go as The Gardens Hotel only accepts guests 16 and over, and I don’t think we can fudge that with our one-year old, even though he is “very advanced” (as all parents like to say)!  I remember we went into the reception area during our trip when I was 16.  My dad was telling funny stories about how the room used to be his aunt’s dining room and the chandelier had an active bee hive that dripped honey onto the table!  She was eccentric, but I think the concierge thought we were nuts!

Prior articles are republished on my website at

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.