How do you calculate your home office sq ft percentage?

[Slav4ikMD]

Having just read the Sandy Bodkin book (and having a home office for the first time for 2016 and doing my taxes now), I have just learned of the "net square footage method" - which basically says that to get the total, you do NOT have to count "common areas" such as hallways and stairways - at least in my case, this makes a fairly significant difference in the calculation.  (2017 edition of the book, page 89)  Thoughts on this?

Also I am never quite sure whether the garage and partially finished basement should be used for the total or not.

If I count everything then I am at around 8%, if I don't count the garage, basement and common areas, it is double that, so a huge difference.  Would love to hear some feedback!

Thanks!

[jfoxcpacfp]

We don't count areas that are not served by HVAC and that are not in use as part of your home. That would leave off your garage and the basement. The hallway and stairs, however, I would not recommend omitting from the calculation as they are in use and necessary areas of your home, same as your kitchen and den. I don't know Mr. Bodkin's rational for the recommendation and do not plan to read the book so just take that as an opinion from another professional.

That said, I would caution you about self-preparing a return with a home office. Not only are the calculations fairly complicated (even though you have obviously done quite a bite of homework for this schedule and will probably prepare the schedule with flying colors) but you are at higher risk of audit. The IRS system is set to target HIPs (Hgh Income Professionals) who self-prepare complicated returns. Otoh, the IRS is seriously underfunded so probably nothing to worry about but jmo.

FAQs About Home Offices for Doctors

[Slav4ikMD]

I am not doing this on my own, I have a CPA prepare my taxes and we have discussed this.  The reason I posted this question is because there are multiple sources online that talk about the net square footage method and omitting areas that would not be potentially usable as an office (e.g. http://member.taxstrategyletter.com/135), but it does seem to possibly be a controversial area - or not, I am just not sure.

BTW is there any issues with Bodkin's book per se?  It's often quoted as the go to learning resource in the WCI and bogleheads communities, so just curious...

As I mentioned many times in the past, I learn best from multiple sources, which include various recommended books, this forum, IRS publications, my CPA, etc.  It's just like learning medicine.  I know we've disagreed on this in the past.

[jfoxcpacfp]

Slav4ikMD wrote:

I am not doing this on my own, I have a CPA prepare my taxes and we have discussed this.  The reason I posted this question is because there are multiple sources online that talk about the net square footage method and omitting areas that would not be potentially usable as an office (e.g. http://member.taxstrategyletter.com/135), but it does seem to possibly be a controversial area – or not, I am just not sure.

BTW is there any issues with Bodkin’s book per se?  It’s often quoted as the go to learning resource in the WCI and bogleheads communities, so just curious…

As I mentioned many times in the past, I learn best from multiple sources, which include various recommended books, this forum, IRS publications, my CPA, etc.  It’s just like learning medicine.  I know we’ve disagreed on this in the past.

Click to expand...

I see. No, I have no problem with the book at all as I haven't even read it. I just assumed you were asking b/c you were preparing on your own (assumption is the mother of all screwups, as my husband says). My apologies, but I post way too often to remember who I've had conversations with and on what subject since 1/9/16.

As for reading a whole book to prepare a home office form, it seems (to me) to be a bit of overkill, but that's just me and just because we've been advising on home offices for so many years. Passed audits with no changes. If I were preparing your return, I would use the areas I described, for the reasons I articulated. However, your CPA's judgment is what matters - that's who you are paying.

[Hawkeye225]

I calculate based on the way Johanna does and have consulted my tax attorney/accountant for this who agrees.  She also does my taxes with the hope that having a CPA sign off (and also stay as an S corp instead of SE) will diminish the chance of an audit; and that is on her advice and I trust her.  That said, I do not enter in the gray zone on home office calculations and stay conservative.  I can easily justify expenses.

[adventure]

I don't bother with the sq ft calculation, but I do expense the internet for the job. One year, if I added in the sq ft math, I was going to save $76. Decided the risk wasn't worth it. One email about getting audited wasn't worth that money.

[Hawkeye225]

Agree adventure...the savings can be minimal.  For my S corp, taking the calculated home office expense saves me around $500 vs. $300 for the standard deduction so it's I often wonder if it's worth the time and effort of the calculation alone.  However, as an S corp, start adding in phone, internet, occasional computer or desk purchase, mileage, billing fees, savings on FICA, insurance deduction (health, dental, vision), HSA (can be done without S corp but need extra money to do so) and solo 401k contributions, it does add up.  All of that can be done as SE alone as opposed to S corp but it's our belief that it diminishes audit potential if it's does through an S corp vs self employed schedule C alone and prepared by a CPA.  I only find it worth it if I make 80k or greater...otherwise the expense and brain damage is too much; the brain damage is borderline already.

Separate topics included I know but this often comes up with S corps vs. SE so I threw it in there.

Bottom line is that home office deduction isn't a great deal of money.

[jfoxcpacfp]

S-corp - you're using an accountable plan, right?

[Hawkeye225]

If I understand an accountable plan, it's used for employees.  Since I'm both the employer and employee, then I suppose the answer is yes.  All expenses are substantiated and I reimburse myself monthly and those reimbursements are not subject to income tax.  What am I missing here Johanna?