logo

Ways Through the Maze: A Tax Guide for Indies

#3
Hello Fellow Indie,
 
Office-in-the-Home is an honest and useful business expense. Any indie who uses a part of his or her home for business should take a deduction for the costs of running the home office -- if it qualifies. Take a look here 3 Rules for Home Office Expense ... everybody's asking about them  for the requirements for taking a home office.
 
IRS regulations include language requiring "exclusive use" in order for a home-office deduction to be valid. This month I am giving you two instances that clarify what "exclusive" means. 
 
As are all my slices of indie life, these questions come from my blog Q&A archive.  
For more info please check out
  • my site
  • my blog
  • my book, SELF-EMPLOYED TAX SOLUTIONS



    • Wishing you success in your indie venture,
    June Walker
    june@junewalkeronline.com
    June Walker
    Consultant to Indies
    June's Book
     
    Join our list
    Join Our Mailing List 
     

    Ways Through the Maze

    Will bring you clear and simple solutions to complicated situations about
    • income
    • expenses
    • taxes
    • recordkeeping
    • indie pensions
    • being self-employed

    The Why of 

    Ways Through the Maze

    To guide indies to a more simple and secure tax life. 

    To promote indie-business self-confidence. 
     
    To humanize tax issues with glimpses into the lives and concerns of self-employed people. 

    Each issue will include one or more Q&As that come out of real-life situations of indies who have visited my blog or my website.  
     
    From time to time I'll also announce indie happenings of interest to you.

    Look below for this month's

     Slice of Indie Life 
     
    Exclusive doesn't mean all activity.
    Dear June,

    I heard you speak at the NM Committee of Women in the Arts last spring and I bought your book,Self Employed Tax Solutions. Your book has been very helpful to me.

    I have a question that I hope has a simple answer. I have never taken a home studio/office deduction on past advice from accountants. I would like to take that deduction this year, but am unclear if I really meet the requirements. I have a room in my apartment that is used exclusively for my painting. It's the only place I paint other than when I go outdoors to locations for plein air painting. So it's exclusive and it's regular use. However, I don't do my bookkeeping there (I do that in my office area that is not used exclusively as a business office) and I don't meet clients there since I normally sell out of shows or galleries. Can I still take the studio as a deduction?

    Also, while I am doing my best to sell my work and earn a profit, I have yet to do so. I believe I would be able to prove my painting is not a hobby. Does that have any bearing on a home studio deduction?

    Thank you for your reply.
    Sincerely,
    Lee


    Hello Lee,

    Yes, you have a legitimate deduction for home studio. You may be confusing the meaning of "exclusive use" in this situation. Exclusive simply means you cannot do anything else in the area you use for your business -- in your case, painting. It does not mean that you must do all your business -- all your painting and paperwork -- in that area. You may have more than one business work area. All are deductible as long as they are exclusive.

    Because you don't yet have any profit only some of your home studio expenses will be deductible now. Others will be calculated and put on hold to be used against future income.

    By the way, the accountants you've been dealing with are not unique. So many out-of-touch tax professionals tell indies not to take a deduction for home office or studio expense. Those same accountants would never tell the local car fix-it shop not to deduct the repair shop. I find it infuriating. When that happens, what I hear the tax pro saying: "You're not a real business." Get away from that kind of accountant as quickly as you can.

    Here's a post to give you more info on home office:
    It's tax time so ... beware of bad advice from the real-life Sammy Segar, CPA

    Best,
    June
    Exclusive does mean exclusive.
    Puneet from Wisconsin has two questions on home office. I thought it best to look at each individually.

    Here goes ... Puneet asks:

    (1) I am a full-time doctoral student and also a part-time computer consultant. All of my consultanting work is contract-based projects. While I study as well as work out of my home-office, I do all my work out of my home-office exclusively (that is, I don't do my work anywhere else but in my home-office, but I also study in my home-office because my work is not full-time).

    I have many business-use facilities such as additional phone line, software, a computer that I use for my business as well as my research, etc. Can I take a home-office deduction? I started my business last Fall, so I didn't make any money last year, but this year looks good.

    Here's the killer of his home office deduction: I study as well as work out of my home-office.
    The "exclusivity" aspect of home office is not that it's the only place you do your self-employed work. It means that you don't do anything else there. Your indie venture may be done in more than one place, but your home office may house only your indie work. You may run two of your home businesses from one home office but you may not do your schoolwork there.


    (2) My wife is a full-time artist and art teacher, and she uses another portion of the house for her art studio and for teaching art. While she has exclusive, regular, and principal use of her space for her work, we share some facilities such as Internet connection, laser printer, Quicken (I keep her records). We file our taxes jointly. Can she also take a home-office deduction for her portion of the office? Many thanks in advance.

    If Puneet's wife does only her art work in her portion of the house, she gets a home office deduction. I assume Puneet's printer, etc. is in his home office. His wife may use it. That does not negate her deduction. It does negate his. But he doesn't get one anyway because he does his schoolwork there.

    I'm working on a publication explaining the most tax- advantageous way for husband and wife to each have an indie business. Watch for the announcement of publication this summer.

    Puneet, hope this is clear. Please let me know if it is not.

    May 2007 be a money-making year for you.

    Best, June