D.C.

Taxes

 

Not many companies pay their executives to maintain offices in their houses. They should, for two reasons. It is a way to help executives lower their tax bills. And it is one practice that isn't under fire from tax reformers.

Under this scheme, executives who use offices in their homes can collect rent from their employers. The executives claim that amount on their personal tax returns as rental income. They can deduct all costs associated with the upkeep of their offices -- including maintenance and utilities -- and depreciate the portion of their house that is devoted to business.

The beauty of this strategy is that deductions for a home office usually exceed the amount of rent paid. So employees take a loss on their tax returns instead of reporting extra taxable income. "It's one of the best ways I know of to get an executive a couple of thousand dollars tax-free," says Neil Godick, a Philadelphia accountant. Most businesses aren't aware of the home-office strategy; others avoid it because they worry that it will prompt an audit. It won't, Godick says, as long as the employer takes measures -- such as getting a rental estimate from a real estate agent -- to ensure that the rent being paid is reasonable.