Telecommuting is becoming more popular for both part- and full-time employees. There are benefits for both the employer and employees in these alternative office environments.
The employer can save office space, which is nice especially if your office is cramped already. Telecommuting also allows employers to hire individuals who do not live locally. This opens the door for the employer to consider hiring a greater number of people, thus they will be more likely to find an individual with the skill set they are seeking.
Employees get many benefits from telecommuting, including being able to more easily balance their personal and professional lives. However, there are many tax issues which need to be thought out before someone starts telecommuting.
The first question most individuals ask when they start working from home is whether they can deduct any expenses associated with their home office. There are two types of expenses generally associated with home offices, direct expenses and indirect expenses. Direct expenses are items that relate to the home office only. For example, direct expenses would include the cost of painting the room where the home office is located. Indirect expenses relate to the home office and the personal portion of the home. Items such as utilities, real estate taxes, mortgage interest and homeowner’s insurance are just a few items included as indirect expenses.
The direct expenses and the business portion of the indirect expenses are considered deductible only if the office part of the home is used regularly and exclusively as a place of business. It can also be used as a place to meet with clients in your ordinary course of business. If you are an employee, you must consider one more test—your use of home office must be for the convenience of the employer. This means if the employer has asked you to telecommute instead of working from the office, you will likely be eligible for a home office deduction. However, if you approached the employer about telecommuting, you will probably not meet this test. All expenses for the business use of the home can be deducted by employees on Schedule A as a miscellaneous itemized deduction, which is subject to a limit of 2% of adjusted gross income.
If you work from both your home and your employer’s office, you may be able to take a home office deduction as well. In order to determine if you qualify for this deduction, you must complete what is called a comparative analysis test. This sounds complicated, but really you just have to compare what you do and how much time you spend at each location.
For example, if I performed accounting and tax work from home 35 hours a week as an employee of Henssler Financial, but I also went to the office for five hours a week to review projects and attend meetings, I would be able to count my office at home as a home office. Because I spend most of my time and complete most of my assignments at home, my home office would be my principal place of business.
When you have a home office, an important point for an employee to consider is that anytime you go into your employer’s office from your home the mileage is deductible. You may also deduct any transportation from your home office to other work locations you might be required to visit. Be sure to keep a travel log in order to deduct your mileage on your tax return. This is a big advantage because employees who do not qualify for having a home office are not allowed to deduct their mileage to and from work as this is considered commuting mileage.
If you buy a computer or any other equipment or office supplies for your home office be sure to inform your C.P.A. These are tax deductible items to you. If your employer chooses to reimburse you for the equipment and supplies you purchase for your home office, you are not allowed to deduct the amounts on your tax return; however, you do not have to claim the reimbursement from your employer as income. These payments to you are considered tax-free working condition fringe benefits only. If your employer reimburses you for such items, they will be able to take a deduction for the amount paid to you.
As you can see, there are many tax benefits, but sometimes the rules and regulations can bog you down. If you think you are eligible for a home office deduction, do not lose your deductions because you do not want to deal with the paperwork. Contact Henssler Financial Tax & Accounting Division at 770-429-9166 or [email protected]. We will be happy to give you advice on how to best manage your home office expenses.