I wrote the last blog post on the premise of a rule or local law that might not actually exist as it was explained to me by a professional small business advisor who has been helping me out since I started my home-based Graphic Design business back in 2004.
Each year I’m asked a series of questions about what I do, where I do it, and if I have all of my statements and receipts from the past year. We go through the annual kabuki dance of what’s valid and legitimate, what’s questionable, and what’s not acceptable. For example ; A book that I bought at Barnes and Noble about Graphic Design is OK to take as a deduction, but going to Burger King and eating while I’m reading the introduction to that book is not! (Good to know for the next time.)
Each year I was told by this same professional told me that my home office couldn’t be more than 25% of our homes living space. I was also told that I can only use this space for actual work, not for my own personal recreation. (I jokingly asked, when am I not working?) If there’s anything like a dogs bed, kids toys that are always kept there, anything not directly related to “the business” might disqualify my office from being “an office.” The operative word is might.
These rules or law are both local (The Town Of Rindge) and Federal via the IRS. I took this as gospel. I thought this was written in stone, and that tablet was carved out somewhere here in Rindge, New Hampshire. We talking to other freelancers or people who work from home I would give them this warning; “make sure your workspace/office isn’t too big.”
I admit that I make mistakes, and mine was believing that this was a strict rule handed down by the town and I wrote a blog post asking what I thought were silly questions about the strict rules... along the theme of ‘how do they know, how do they measure, and what if you’re only using 24%?” I’m concerned about government intrusion and to what extremes “they” will go to enforce them.
Zoning issues affect Freelancers working from home. It’s a big subject, how do decisions that come from The White House, The State House, and our Town Halls affect us and how (or if) we can conduct business out of our own home offices. Some of our trade magazines have also devoted huge articles if not entire monthly issues to the top of home offices that echoes some of what’s been said in the comfort of my tax specialists office.
David Lister – a Facebook friend of mine posted this link to the IRS and I found this: “IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year”
Pretty cool, hu? And then there’s this nugget:
“The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.
There’s more to it than that… but from what I get out of that paragraph anything over 300 square feet you can’t deduct. If your home office larger than that is fine, I guess, but you just can’t conduct it.
Currently I’m looking for the actual rules and regulations on home offices and I left a message with my advisor to get back with me with some answers. If YOU know where these rules are written, let me know so we can talk about them later. It’s important we know the actually facts – especially during tax season!
I’ll hammer out a rant about the strict rules (with links) later on.