Sunday, January 29, 2012

2 Views On The Home Office Deduction – From The Same Source!

Lots of really small businesses – and remote workers – work out of home offices. And many of those folks want to take a tax deduction for that space. It’s one of the most popular tax deductions out there – but it’s also a red flag for the IRS, often triggering dreaded audits. 

So what’s a small business to do? Well, if you asked the Wall Street Journal last week, you’d have gotten two very different answers 

On January 24th, the Journal published a helpful collection of Tips To Help You Claim A Home Office Deduction. Author Barbara Weltman lays out the basic rules and concludes with suggestions to talk to your tax adviser (uh, thanks, then why am I reading this?) and keep good records, and a link to the relevant IRS Publication: Business Use of Your Home.  

So far so good.

But four days later, on January 28, the Journal warns against taking the deduction in a very different piece on What You Can Learn From Mitt’s Tax Return. In a slick interactive tour of the return, Laura Sanders lauds Mr. Romney for a variety of effective tax-lowering strategies, including Item D:
D. If you have a "Schedule C" business, think twice before claiming a home-office deduction. The Romneys didn't take one on either of two Schedule C forms, which are for business results reported on personal returns. The Romneys used their Schedule C forms for director's fees and speaking fees.
Not only do home-office deductions raise red flags at the IRS, but they can come back to haunt taxpayers when the home is sold: Part of the gain on the home's sale may not be eligible for the $250,000 or $500,000 tax exclusion because taxpayers who took depreciation deductions in prior years have to reduce the exclusion by that amount.
In addition to raising taxes in many cases, this poses a record-keeping problem, Mr. Ochsenschlager says.
To be clear, it seems that the second article is addressing taking a deduction for depreciation on your home office, not other expenses, such as rent (like the Romneys would be renters!) Bottom line: while the home office deduction may be a tempting way to save a few bucks, if the freaking Wall Street Journal can't figure out if it's dangerous, it may not be the best choice for most small businesses. Hell, it’s making me think twice even as I write this sitting in my very own home office.

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