Home office deduction

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med2010

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Hoping to benefit from the forum’s collective wisdom - buying a house and deciding if it’s worth converting a space into a dedicated home office. I’m a self-employed individual, >2% S-Corp owner, with a mix of W-2 and K-1 earnings. While the actual deduction for the office is relatively small, I am wondering whether it will allow me to deduct my vehicle/gas/toll/insurance etc since I will be traveling from the home office to our multiple sites of practice.

Most of my partners are too fearful of an audit to claim the home office deduction (shouldn’t be an issue if the space actually exists and is used regularly and exclusively), and most seem to think the mileage tracking is not worth the hassle. I think it’s worth the effort to save some money, if deducting the travel costs is legitimate - but I have received varied opinions from accountants and lawyers on that. I don’t want to create problems but also don’t want to be overly conservative. Any experience with this?
 
Home office for anesthesia? Maybe. Deducting travel from basically home to the true workplaces? Deducting the vehicle for a vehicle that's not owned by the business, without very good documentation? It sounds like an invitation for audit and stiff fines. You are clearly trying to do some tax engineering, instead of claiming the most deductions for a legitimate situation.

Even the standard mileage allowance could be a red flag, since traveling from home to a permanent work site is not business travel, home office or not. If it were legit, everybody would invent a "home office", and deduct both the "office" and all commuting costs.

That's just my conservative thinking when about the Law. Ask a GOOD accountant or tax lawyer (i.e. one who has never lost an audit, and will represent you for free).


Publication 463 (2017), Travel, Entertainment, Gift, and Car Expenses | Internal Revenue Service

"If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. "

Publication 587 (2017), Business Use of Your Home | Internal Revenue Service

"You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. To determine whether your home is your principal place of business, you must consider:

  • The relative importance of the activities performed at each place where you conduct business, and
  • The amount of time spent at each place where you conduct business.


Your home office will qualify as your principal place of business if you meet the following requirements.

  • You use it exclusively and regularly for administrative or management activities of your trade or business.
  • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.


If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. "

And here dies your financial engineering:

"If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests.

  • You physically meet with patients, clients, or customers on your premises.
  • Their use of your home is substantial and integral to the conduct of your business.
Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement.

Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home."
 
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FFP said:
Home office for anesthesia? Maybe. Deducting travel from basically home to the true workplaces? Deducting the vehicle for a vehicle that's not owned by the business, without very good documentation? It sounds like an invitation for audit and stiff fines. You are clearly trying to do some tax engineering, instead of claiming the most deductions for a legitimate situation.

Even the standard mileage allowance could be a red flag, since traveling from home to a permanent work site is not business travel, home office or not. If it were legit, everybody would invent a "home office", and deduct both the "office" and all commuting costs.

That's just my conservative thinking when about the Law.
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Home office for anesthesiologist is definitely legitimate, but yes I’m uncertain of whether the travel deduction will fly.

From the IRS itself:

“Example 3.

Paul is a self-employed anesthesiologist. He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. One of the hospitals provides him with a small shared office where he could conduct administrative or management activities.

Paul very rarely uses the office the hospital provides. He uses a room in his home that he has converted to an office. He uses this room exclusively and regularly to conduct all the following activities.

  • Contacting patients, surgeons, and hospitals regarding scheduling.

  • Preparing for treatments and presentations.

  • Maintaining billing records and patient logs.

  • Satisfying continuing medical education requirements.

  • Reading medical journals and books.


Paul's home office qualifies as his principal place of business for deducting expenses for its use. He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home.”

source: IRS publication 587
 
The home office part I get, although as long as "Paul" is a partner in an S-Corp whose office does most of that stuff for Paul, I am not sure "Paul" can claim the home office as his principal place of business.
 
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Note the key words self-employed anesthesiologist. Also note that in that example he was doing his own billing and scheduling. if those apply, then the deduction is likely valid. If not, in other words if you are an employee or an IC not doing billing or scheduling patients, it is a lot harder sell.
 
Vandalia said:
Note the key words self-employed anesthesiologist. Also note that in that example he was doing his own billing and scheduling. if those apply, then the deduction is likely valid. If not, in other words if you are an employee or an IC not doing billing or scheduling patients, it is a lot harder sell.
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I am not an expert, but I have a feeling an S-Corp shareholder(-employee) is not a self-employed individual.
 
med2010 said:
Hoping to benefit from the forum’s collective wisdom - buying a house and deciding if it’s worth converting a space into a dedicated home office. I’m a self-employed individual, >2% S-Corp owner, with a mix of W-2 and K-1 earnings. While the actual deduction for the office is relatively small, I am wondering whether it will allow me to deduct my vehicle/gas/toll/insurance etc since I will be traveling from the home office to our multiple sites of practice.

Most of my partners are too fearful of an audit to claim the home office deduction (shouldn’t be an issue if the space actually exists and is used regularly and exclusively), and most seem to think the mileage tracking is not worth the hassle. I think it’s worth the effort to save some money, if deducting the travel costs is legitimate - but I have received varied opinions from accountants and lawyers on that. I don’t want to create problems but also don’t want to be overly conservative. Any experience with this?
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You might be able to claim a home office but doubt you can claim a travel deduction. As you said you are part owner of an S Corp. The place where the S Corp. is is your business place. Doubt you can claim traveling to your business place is deductible.

Addendum:

I retract saying you could claim a home office. You are an employee to the S Corp.

No clue why you think you are self employed.

Employee home office
If you work for someone else as an employee, you can deduct home office expenses. However, all of these must apply:

  • You meet the home office requirements (listed above).
  • The business use of the home is for the employer’s convenience. Factors determining convenience include:
    • You’re required to maintain the home office as a condition of employment.
    • The functioning of the employer’s business isn’t possible without your home office.
    • You can’t perform duties properly without the home office.
    • The employer doesn’t provide a space for you to work outside your home office.
    • The employer requires you to provide your own space.
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Home Office Deduction Requirements | H&R Block
 
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The concept of “Tax Home” makes taking travel deductions to your workplace not possible considering you are not self employed as you claim. You are an S Corp shareholder employee.

What is a Tax Home? - TurboTax Tax Tips & Videos

IRS’ definition of a tax home is plain and simple—Your tax home is your regular place of business or post of duty, regardless of where you maintain your family home.

Basically, your tax home covers the general area or the entire city where your business or workplace is located. If your office is somewhere in Cortlandt Street in New York, then your tax home is New York. If you travel to Louisville every week for your business but return to your permanent residence in Nashville on weekends, your tax home is still Louisville even if you call Nashville home.
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Where is Your Tax Home? - Sanjiv Gupta CPA
 
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med2010 said:
Hoping to benefit from the forum’s collective wisdom - buying a house and deciding if it’s worth converting a space into a dedicated home office. I’m a self-employed individual, >2% S-Corp owner, with a mix of W-2 and K-1 earnings.
Click to expand...
Now that I looked into this I find it funny that you think your K-1 income classifies you as “self employed” when the purpose of you getting a K-1 is to minimize payroll taxes, let alone self employment taxes that even higher.
 
Yeah, claiming a travel and vehicle deductions is begging the IRS to audit you. They pay particular attention to high income individuals and any red flag will cause a lot of headaches and likely hundreds of additional hours of audit tax time along with fees and penalties. Not worth it.
 
Hmm I guess I misunderstood what being “self employed” means; I had to sign HR paperwork that as a “self employed individual” the group can no longer fund my HSA and I can’t participate in a limited FSA, but I see now the IRS definition of self employed is different and requires 1099 income. Glad I asked, thanks for the replies.
 
med2010 said:
Hmm I guess I misunderstood what being “self employed” means; I had to sign HR paperwork that as a “self employed individual” the group can no longer fund my HSA and I can’t participate in a limited FSA, but I see now the IRS definition of self employed is different and requires 1099 income. Glad I asked, thanks for the replies.
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The paperwork should have said “as a business owner” instead of “self employed”.

Can business owners participate in an FSA, HSA, or HRA?
 
FFP said:
Home office for anesthesia? Maybe. Deducting travel from basically home to the true workplaces? Deducting the vehicle for a vehicle that's not owned by the business, without very good documentation? It sounds like an invitation for audit and stiff fines. You are clearly trying to do some tax engineering, instead of claiming the most deductions for a legitimate situation.

Even the standard mileage allowance could be a red flag, since traveling from home to a permanent work site is not business travel, home office or not. If it were legit, everybody would invent a "home office", and deduct both the "office" and all commuting costs.

That's just my conservative thinking when about the Law. Ask a GOOD accountant or tax lawyer (i.e. one who has never lost an audit, and will represent you for free).


Publication 463 (2017), Travel, Entertainment, Gift, and Car Expenses | Internal Revenue Service

"If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. "

Publication 587 (2017), Business Use of Your Home | Internal Revenue Service

"You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. To determine whether your home is your principal place of business, you must consider:

  • The relative importance of the activities performed at each place where you conduct business, and
  • The amount of time spent at each place where you conduct business.


Your home office will qualify as your principal place of business if you meet the following requirements.

  • You use it exclusively and regularly for administrative or management activities of your trade or business.
  • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.


If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. "

And here dies your financial engineering:

"If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests.

  • You physically meet with patients, clients, or customers on your premises.
  • Their use of your home is substantial and integral to the conduct of your business.
Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement.

Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home."
Click to expand...

Are you an accountant?
 
A local CPA and I usually sat next to each other at our sons' baseball games. One tidbit he shared stuck in my mind.

"Two things guarantee extra scrutiny by the IRS, with greater chance of audit. Even if your deductions are completely legitimate and properly documented, claiming a home office deduction and/or Schedule A itemized deductions which exceed 35% of AGI will get your return under the IRS microscope."
 
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Ok, so looks like we’re in the minority, but everyone in my group takes the home office deduction. In my group, everyone is a shareholder in the corporation, but we pay ourselves as W-2. There is verbiage in our contract which stipulates that everyone must maintain a home office for the purposes of contacting patients, accounting, retirement planning, scheduling, etc. (all the reasons mentioned earlier). We then take the deduction through the corporation - not on our personal returns. This is how our CPA’s told us to structure it. Our CPA’s are very clean. We must submit documentation for everything. I have faith that this set-up is legit. If we are ever audited, I’ll let you now.

Hopefully I just didn’t start another war with urge.
 
SaltyDog said:
Ok, so looks like we’re in the minority, but everyone in my group takes the home office deduction. In my group, everyone is a shareholder in the corporation, but we pay ourselves as W-2. There is verbiage in our contract which stipulates that everyone must maintain a home office for the purposes of contacting patients, accounting, retirement planning, scheduling, etc. (all the reasons mentioned earlier). We then take the deduction through the corporation - not on our personal returns. This is how our CPA’s told us to structure it. Our CPA’s are very clean. We must submit documentation for everything. I have faith that this set-up is legit. If we are ever audited, I’ll let you now.

Hopefully I just didn’t start another war with urge.
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Yes. It is possible the way you describe it. Your employer “forces” you to have a home office.
How to Deduct a Home Office as an S-Corp - Amy Northard, CPA - The Accountant for Creatives®


However the tax benefit is minimal.

Keep in mind that two major expenses associated with a home office are mortgage interest and property taxes. These expenses are already 100% deductible on Schedule A, so for most taxpayers the home office deduction or reimbursement is relatively small. And you must reduce your mortgage interest and property taxes being deducted on Schedule A by the amounts reimbursed by your company. No double dipping.
Click to expand...
 
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acidbase1 said:
Are you an accountant?
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No, and I have never claimed so. But I've been doing my own taxes for 15 years, since an "accountant" created what I considered at the time to be a fraudulent (and very favorable) tax return. I called the IRS with questions, they said my interpretation of the law was right, I submitted my own version of the tax return, and the rest is history.

While I can be wrong in a lot of things (as I was above), the IRS publications are not. And while a non-professional may misunderstand them, they are still extremely useful to figure out what's legal. In the end, it's our signatures on the tax returns, and it's us who would pay the hefty fines. The excuse "but that's what my accountant said" won't stand. Even if using a professional, always doublecheck what s/he writes, in your name, in your tax return.

I never let a couple thousand bucks stay between me and the law.
 
urge said:
Yes. It is possible the way you describe it. Your employer “forces” you to have a home office.
How to Deduct a Home Office as an S-Corp - Amy Northard, CPA - The Accountant for Creatives®


However the tax benefit is minimal.
Click to expand...

So yes, the actual deduction isn’t very large - it maxes out at $1500 if you have the max allowed 500 sqft home office. However, it opens up a lot of other deductions that are related to maintaining that home office. Portions of your home internet, home security, furniture/computers/equipment/etc. Also, the miles you drive from your mandatory home office to the hospital are now business miles.
 
FFP said:
No, and I have never claimed so. But I've been doing my own taxes for 15 years, since an "accountant" created what I considered at the time to be a fraudulent (and very favorable) tax return. I called the IRS with questions, they said my interpretation of the law was right, I submitted my own version of the tax return, and the rest is history.
Click to expand...

Man, you’re such a buzzkill.
 
SaltyDog said:
So yes, the actual deduction isn’t very large - it maxes out at $1500 if you have the max allowed 500 sqft home office. However, it opens up a lot of other deductions that are related to maintaining that home office. Portions of your home internet, home security, furniture/computers/equipment/etc. Also, the miles you drive from your mandatory home office to the hospital are now business miles.
Click to expand...
That is a very crafty solution you guys have. The whole group may end up being audited for it, since it's almost as if you voted yourselves a tax benefit (I guess you would have to prove you are actually doing significant business activities at home), but that's a different story.
 
FFP said:
That is a very crafty solution you guys have. The whole group may end up being audited for it (I guess you would have to prove you are actually doing significant business activities at home), but that's a different story.
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It is crafty, but like I said earlier, I feel our accountants are firmly on the correct side of the line of legality. These deductions are all taken through the practice, so there’s virtually nothing even close to borderline on our personal returns. I think it would be hard for the IRS to try and prove we aren’t all using our home offices.
 
SaltyDog said:
So yes, the actual deduction isn’t very large - it maxes out at $1500 if you have the max allowed 500 sqft home office. However, it opens up a lot of other deductions that are related to maintaining that home office. Portions of your home internet, home security, furniture/computers/equipment/etc. Also, the miles you drive from your mandatory home office to the hospital are now business miles.
Click to expand...

I’m on a W2 and don’t have a home office but computers/phone/iPad/internet/office equipment are all paid pretax. Never tried to buy furniture pretax though😉 OR shoes, yes.
 
SaltyDog said:
So yes, the actual deduction isn’t very large - it maxes out at $1500 if you have the max allowed 500 sqft home office. However, it opens up a lot of other deductions that are related to maintaining that home office. Portions of your home internet, home security, furniture/computers/equipment/etc. Also, the miles you drive from your mandatory home office to the hospital are now business miles.
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I believe that is what the op was trying to do. You should put him in contact with your CPA.
 
Monty Python said:
A local CPA and I usually sat next to each other at our sons' baseball games. One tidbit he shared stuck in my mind.

"Two things guarantee extra scrutiny by the IRS, with greater chance of audit. Even if your deductions are completely legitimate and properly documented, claiming a home office deduction and/or Schedule A itemized deductions which exceed 35% of AGI will get your return under the IRS microscope."
Click to expand...

Home office is one deduction I never take, because the tiny amount of money it would save me isn't worth the audit risk. Even a successfully defended audit is a huge loss in time and stress.
 
Here’s when @FFP guest starred on Family Guy:

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pgg said:
Even a successfully defended audit is a huge loss in time and stress.
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For me, this is the critical point: it is a risk benefit/reward calculation.

Figure out what you earn an hour. Then figure out what you will receive in reduced taxes (not the deduction, how it effects your final tax bill.)

Now how much will it cost you to collect all the data every year for the deduction? If you are reading this thread, that number is probably relatively high even if the hours are very small. Subtract that from your tax savings. Now, consider the fact that it might increase your chance of being audited to once a decade. (A complete guess.) Guesstimate the hours for dealing with that times your salary. Subtract that divided by ten from your tax savings. We will not even talk about the costs if the deduction is rejected and there are taxes and penalties.

My guess reinforced through experience is that number is very small or negative. For me, if you add it all up it is just not worth it.

For the youngsters, it is important to re-calibrate your financial decisions. We had an attending once, fresh out of residency, who was thrilled to get a job reviewing charts for a NP practice. The numbers mesmerized him, coming off of medical school and residency. Then I reminded him, "you know you can make more than that working a couple of extra hours a month in your "day job"? Things like tax deductions sound great, until you actually work out the numbers with the value of your time.
 
SaltyDog said:
I’m just givin’ ya a hard time man, but you do come across as pretty straight laced. I mean, who calls the IRS on themself?? 😆
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I didn't call the IRS on myself. I called with a question before submitting my first ever (American) income tax return. 😉

To answer your question, who calls the IRS on themselves? Legal immigrants, aka the people who cannot afford a (tax) mistake in their long quest for an American citizenship.
 
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