Expert: Leslie Truex - 11/3/2009

Question
My wife and I have stated a non-profit org and we want to start with an office area in our house. We plan, in the future, to move to an outside office.  We have a small house with 2 small kids.  Can we set aside a workspace area and still deduct expenses (utilities, taxes, etc.) based on the square footage of the workspace against the total footage of the house?  We plan to use a corner of the den (with desk, fax, printer, computer and phone) as the workspace/office.  Is that allowed?  Also, we plan to get a second phone line installed for the business.  But could we still use the internet service coming into the house for the business and deduct a portion of the monthly cost for the business or would I need to get a totally different internet service account?


Answer
Hi Carl,
I'm not as familiar with non-profit organizations so you'll want to consult a tax expert. However, the home office rules are that you can deduct the percentage of space used in your home. So if your office is 100 square feet and your home is 1000 square feet you can deduct 10%. There are rules about it being dedicated space for an office. Check out the IRS publication here: http://www.irs.gov/pub/irs-pdf/p587.pdf Mortgage doesn't usually get included but utilities and other things that are needed to keep the office open and running are. The exception is your main phone line. You can only deduct business related expenses such as specific long distance calls or added features needed for business such as voicemail or distinctive ring. You can deduct the cost of the second line if its a business line.

You can deduct the portion of the Internet service that is used for business. So if you're online for fun, shopping etc, you need to separate that time from work time. Having a business email, website etc will show that you're online for business work. There are some great free tools that you can use to "clock" in your work time. Here's one you can check out: http://screeperzone.com/2007/08/09/activity-tracker-version-01-released/

Again, I'm not a tax expert so you'll want to check with your accountant or a tax person to make sure you're filing correctly especially for a non-profit.

Leslie Truex
http://www.workathomesuccess.com