More fallacies of home-office taxes

Second of a two-part series

Ten years ago, magazine staffer Bridget Kinsella received a letter from the IRS. Like most taxpayers, just seeing the envelope made her panicky. Was she being audited because she worked from home? Had she done something wrong?

The letter turned out to be a false alarm: Kinsella had simply forgotten to include her W-2 along with her Form 1040-EZ.  But in the 10 years since, Kinsella - who today runs a literary agency from her Oakland, Calif., home - has had her taxes professionally prepared.

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Second of a two-part series

Ten years ago, magazine staffer Bridget Kinsella received a letter from the IRS. Like most taxpayers, just seeing the envelope made her panicky. Was she being audited because she worked from home? Had she done something wrong?

The letter turned out to be a false alarm: Kinsella had simply forgotten to include her W-2 along with her Form 1040-EZ.  But in the 10 years since, Kinsella - who today runs a literary agency from her Oakland, Calif., home - has had her taxes professionally prepared.

"I can add and subtract, but it's a whole different thing when you itemize deductions, which you must do when you're self-employed. I want to make sure I'm following the laws, but I don't want to learn them myself."

That's sound reasoning, says Jan Zobel, an IRS-licensed tax agent and author of Minding Her Own Business: The Self-Employed Woman's Guide to Taxes and Recordkeeping.  It's not just the forms that get tricky. The laws can be complex and confusing.

 Accountants, CPAs and tax preparers who know the home office tax codes can be strong allies.
Last time, we looked at five fallacies home office workers have about the U.S. Tax Code. Here Zobel offers five more: 

• I rent, therefore I can't claim my home office.  Renters can deduct just like homeowners, taking the percentage that the home office is to the home.
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• I need to receive clients, partners or employees to claim a home office. A home worker who never entertains a business guest still can take the home office deduction.
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•  My home office is too small to bother. Deducting a home office that's 5% or less of the home's total square footage still allows some pretty healthy savings. Also, if you want to deduct gas mileage, you must claim the home office or your first trip of the day is treated as a nondeductible "commute" to work. Claiming the home office also lets you deduct a percentage of mortgage interest and taxes, and certain related expenses, like upkeep and some utilities. Besides, the general working principal of tax preparers is that people should take every deduction they have coming.
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• Since I have four bedrooms, and my office is one of them, my home office is about 25% of my total square feet. Fuzzy math, Zobel says. People sometimes think of the office as a bedroom and combine it with others to come up with a home's size. If you don't have the home's plans, break out a measuring tape or walk off all your rooms to get the correct percentage.
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• There's no guidance to help me out.  Read Zobel's book, and interview other home-based workers to get referrals to home office savvy tax pros. Then, hit the IRS's site to download Publication 587 (on Business Use of the Home) and Form 8829 to compute and complete the calculations.