Home Office Deduction

Discussion in 'Professional Trading' started by trader345, Oct 17, 2011.

  1. For traders who trade from a home office in a home that they rent, did you use the home office deduction on your taxes? How did you calculate it? Did the IRS hassle you about it?
  2. Home Office Deduction has long been a big red flag for audit. (Lots of people tried to write-off their entire home expenses because they had a small Amway distributorship in the corner of their bedroom.)

    To take the deduction properly, there is some bookkeeping... and the benefit isn't much more than the cost of having an accountant prepare the numbers.

    Let's say you have a legit home business, and it occupies 1/6 of the total square footage of your home*...

    1. The business space must be exclusively used for the business.

    2. You're entitled to write off 1/6 of qualifying household expenses.

    3. If you take a depreciation deduction 1/6 of your owned home on any amortized schedule, you must recapture the depreciation upon sale. (There's a bit more to it, but this is the gist.)

    And as this is a red flag, you'll have to keep good records... you're likely to need them... as you're a high profile candidate for audit.

    Run some numbers on your case... likely the taxes saved are not worth the hassle.

    * If your home is 1200 sq ft... with 1200 sq ft basement... that's 2400 total. If you're using a 10x12 spare bedroom as an office, that's only 5% of the total square footage. So... you'd get to deduct 5% of the rent, 5% of the utilities, 5% of the cost of having someone come in and clean the house... unless you paid specifically to have someone clean just your office space.
  3. I operated my business out of my home for years, I wouldn't touch that deduction with a ten foot pole.
  4. Ditto. Just the hassle of an audit makes it not worth it, even if you prevail.
  5. Bob111


    same here. i did rough estimation on what can be deducted and abandon that idea right away. not worth the hassle. are you are seriously going to calculate let say % of your phone or internet usage? all we are talking about is a few bucks here and there.forgetabboutit :p
  6. GTS


    There is a story floating around about someone who claimed the home office deduction, got audited and then brought in a picture of the claimed home office space and the auditor noticed a dog dish on the floor and disallowed the whole deduction based on that. You'd have to be really careful to use a space exclusively for your trading and never anything else....like others have said, doesn't appear to be worth the hassle.

    Edit: Quick google search found a reference to the story: http://www.jdtunbound.com/march/2005/rules-taking-home-office-deduction
  7. The form 8829 will explain it all.

    THere is a % that you mulitple against the sq feet of your "office" and it will give you the basic calculation. Then you carry that over to your Schedule C.

    I have a 3500 square foot loft. I claim my office space as 200 sq ft. My loft is all open, no rooms. So, I used a desk and a book shelves to map out a 200 square foot space. I measured, took photos and have it on file if I need it.

    I have never been flagged and never will as the % used for office space compared to "Living Space"....is small.

  8. Wait till you sell it. You are just deferring the tax you owe and the IRS will get it if you ever decide to move. The longer you live there the more you will owe.
  9. I am an Enrolled Agent with H&R Block. Filing an 8829 is no more audit fodder than a schedule C. How you fill it out is.

    The only amount you have to recapture upon the sale of the home is the depreciation, which should be small in comparison to your other deductible home office expenses. Besides your real estate taxes and home mortgage interest, which may be deductible if you itemize, you can also deduct utilities, insurance, repairs and maintenance, operating expenses, rent, and many other unforeseen expenses.

    Can you deduct your utilities any other way? Rent? Home owner's insurance? Repairs, maintenance, or "cleaning"? How else are you going to deduct the $500 in electricity those six monitors eat up in a year?

    Fuck, what do I know compared to all the other experts around here?
  10. Thanks Silver. As usual, the BS rumors on this forum can get out of control.
    I agree with you....this filing does not flag the return per se.
    I am sure if the percentage claimed gets above 40-50%, then OF COURSE, that would be a red flag.
    #10     Oct 17, 2011