THE OTHER BREAK ON EQUIPMENT
The home office deduction isn’t the only way to get a tax break on office equipment. You can deduct the cost of business-related capital expenses, such as a computer, desk, fax machine or filing cabinet, by treating them as assets.
“Lots of times I say just skip it,” says accountant Perry Wiseman of the home office deduction. “Take those and leave the rest alone.”
A lot of owner-operators claim all such office-related capital expenses in the first year rather than depreciate them over a longer period, he says.
When it comes to owner-operators seeking a home office tax deduction, many have called, but few are chosen. At least that’s the case with the clients at Truckers Accounting Service, in Omaha, Neb.
“I’d say about 50 percent of them ask about it,” says owner Perry Wiseman. “About 10 percent take it.”
One in 10 isn’t much, but if you’re unsure about your eligibility, it’s worth a closer look. For Wiseman’s eligible clients, the deduction averages about $1,500. Take 30 percent (15 percent self-employment tax plus 15 percent income tax bracket) of that, and it’s $450 off your tax bill. If you’re in a higher income tax bracket, it’s worth more.
“There’s some people who fit into it if maybe they have their own authority, only one truck, the wife sits at home and lines up loads and pays the bill,” Wiseman says. Most leased operators – conducting much of their business out of the truck and leaving the rest to their accountant – don’t need a space at home devoted to business.
What really matters, though, is whether your office meets the Internal Revenue Service guidelines: The office must be used “regularly and exclusively” for business. Regularly means more than occasional use. Exclusively means your computer isn’t also used for your son’s music downloads or your wife’s eBay buying sprees.
If you meet those criteria, then it’s time to break out the tape measure, calculator and certain household bills. First you need to establish what percentage of the house the office takes up, based on square footage. If it’s a converted 10-by-10 bedroom and your house has 2,000 square feet, that’s 5 percent (100 -: 2,000).
Apply that 5 percent to certain home costs: utilities, rent or mortgage, water, home insurance and other things. This can get complicated, though, when you consider that some of the home-related expenses, such as mortgage interest and real estate taxes, would normally be itemized on Schedule A deductions, Wiseman notes. In other words, you would have to deduct less than 100 percent on Schedule A to account for the percentage on your home office deduction.
Check with your accountant regarding such details – and make sure you’re comfortable with the assumptions that are made if you claim a home office. “The home office deduction in and of itself will not trigger an audit,” Wiseman says. “But if you do get picked for an audit, it will probably be one of the first areas they look at.”