Even after meeting the criteria to qualify for the home office deduction, a myriad of different IRS rules apply to exactly what expenses can be deducted. These rules cover depreciation of the home, depreciation of equipment, how to recover that depreciation if the home is sold, etc. One important thing to note is that the monthly residential telephone charge cannot be deducted, even if most of the calls pertain to the business. However, long distance business-related calls can be deducted. Individuals are advised to consult an accountant to stay within the law on home office deductions.
Simplification of the home office deduction may be coming. Colleen DeBaise wrote, in an early 2006 article entitled "Locking In The Home-Office Deduction," about efforts being made to simplify this tax deduction. She wrote, "The National Association for the Self-Employed, a small-business group in Washington, D.C., supports a simplified, standard deduction to ease the burden on home-based businesses. And perhaps someday, sweet relief will be granted: Two bills introduced in 2005 contain language for a standard home-office deduction, although neither has passed. One of the bills, the Small Employer Tax Relief Act of 2005, specifically calls for a standard home-office deduction of $2,500'¦. In the meantime, small-business owners have little choice other than to muddle through the form—or hire a tax adviser for help."
OTHER CONSIDERATIONS
Besides the IRS regulations, some municipal governments have zoning laws that restrict or license home offices. Originally designed to protect residential neighborhoods from becoming commercial zones, the zoning laws have sometimes been strictly interpreted to keep residents from conducting any sort of business from their home, even if it does not have a commercial impact on the rest of the neighborhood. Zoning laws and ordinances may affect such varied issues as parking for customers, access for deliveries, the number and types of employees permitted, and the use of signs or other forms of advertising. As a result, people wishing to set up home offices should check with their city's zoning office and licensing board for restrictions that may apply to the city, or even to their particular neighborhood.
If a home-based business is allowed at the site, the next step is to determine whether a home office is a workable option in the residence. For example, individuals interested in working from their homes must consider where the office should be located, how much it will cost to equip the area for business use, and what adjustments will need to be made in living arrangements. While a home office offers an entrepreneur a number of tax and lifestyle benefits, it can also pose problems relating to limited space, isolation, household distractions, and security concerns.
Providing that a home office is feasible, the next step is to choose a location for the office. This location may be a spare bedroom, a den or study, a basement, an attic, a garage, a kitchen table, or a corner of a living room. When choosing a location for the home office, entrepreneurs should take into consideration their own working needs, the needs of clients who may visit, and the lifestyle needs of other members of their family. Though it is important for the home office to be located out of the mainstream of household activities, it also should be located in a desirable spot that will offer a pleasant working environment. The location of a home office is very significant; "in fact, almost every problem people have in working from home '¦ is either aggravated or alleviated by where they put their offices," Paul and Sarah Edwards noted in their book Working from Home. At a minimum, the location chosen must be large enough to contain a desk and chair, computer and phone equipment, storage and shelf space, and contemplation or meeting space.
After a location has been determined, the work space must be clearly defined in order to eliminate potential distractions and create a good working atmosphere. "A peaceful marriage of home and office depends on establishing effective boundaries," according to Paul and Sarah Edwards. If no extra room is available in the home, it is possible to use room dividers or office partitions to creatively define the office space. It is vital that the space be well-lit, as lighting is a key contributor to productivity. In addition, if clients are expected to visit the home office, then ideally the office should be the only part of the home they see. Thus if clients will visit regularly, it might be helpful to have an outside entrance to the office space. Besides defining the work space, it is important for an individual working out of his or her home to establish specific working hours and stick to them. Home-based business owners should let family, friends, and neighbors know when they are available for socializing and when they will be working. Otherwise, family members may interrupt business activities, or friends and neighbors may impinge upon work time with visits or requests for favors or baby-sitting services.
After a home office space has been defined, that space needs to be outfitted with the necessary equipment to conduct business activities. In her book Organizing Your Home Office for Success, Lisa Kanarek recommended plotting the available office space on a grid in order to help select and organize appropriate furniture and equipment. It may also be helpful to think in terms of vertical space as well as horizontal. For example, it may be possible to install storage shelves above a desk, or to use office walls for bulletin boards, dry-erase boards, or planning calendars. The most important consideration in selecting office furniture, besides fit with the available space, is ergonomics. After all, an average person spends 75 percent of his or her day sitting at a desk. If that desk is the wrong height, or the chair is uncomfortable, the entrepreneur may experience back pain, fatigue, carpal tunnel syndrome, or a variety of other productivity-reducing problems. In addition, Kanarek noted that individuals shopping for home office furniture should avoid the temptation simply to seek out bargains. Poorly designed or constructed furniture will only need to be replaced, which may make it more expensive than selecting high-quality materials in the first place.
