Most of us can identify with the characters in The Office, the long running TV show centered on the office staff of a fictional Scranton, Pennsylvania paper company. This was my sole connect back to a familiar place during a time in which I owned and operated a home business. It
was a lonely existence, working at home. The early years were particularly trying, as I could no longer refer questions to a legal department or tax accountant without incurring exorbitant fees. Faced with the task of doing my taxes for the first time as a self-employed, home based
entrepreneur, I wasn’t sure how to proceed. And so I asked myself…

What would Dwight Do?

First, The Office’s Dwight Schute might declare himself a sovereign country, thus avoiding all tax consequences. But, since it’s doubtful that the IRS would recognize Schutesylvania, he’d very likely attempt instead to write off his cubicle as a tax deduction. So I, too, began preparing my first tax return as a self-employed business owner, writing off my home office as a deduction.

“Would I ever leave this company? Look, I’m all about loyalty. In fact, I feel like part of what I’m being paid for here is my loyalty.
But if there were somewhere else that valued loyalty more highly, I’m going wherever they value loyalty the most.”

How right you are, Dwight. For years I prepared my tax returns myself (with the help of my spouse, a CPA). But when you decide to deduct your home office as a business expense, the rules get fuzzy. Don’t worry about loyalty to yourself or your old tax prep guy. Get yourself a seasoned professional tax accountant to take care of your tax returns.  The vast majority of businesses in the US are sole proprietorships, requiring completion of the Schedule C. Unfortunately the IRS attributes most of the tax gap to the errors sole proprietors make on their Schedule Cs. If you’re deducting for a home office, this makes you a target for review.
“Okay, first, let’s go over some parameters. How many people can I fire?”

Dwight is right again. Even if you have to fire your wife the CPA and she makes you sleep on the couch for a few weeks, it’s worth it. When I got audited I didn’t sleep much anyway. Should you decide to ignore my words and prepare your taxes yourself, note these two basic rules to writing off your home office space:
First, your home office space must be used exclusively and regularly for your business. Second, the office must be either your principal place of business or a place where you meet clients, patients, or customers as a normal course of business.

“In the wild, there is no health care. In the wild, health care is, ”Ow, I hurt my leg. I can’t run. A lion eats me and I’m dead.” Well, I’m not dead. I’m the lion, you’re dead.”

If Dwight were paying for his own individual health care plan, this expense would be tax deductible. Your electric bill and property taxes, in proper proportion to the overall square footage of your home, can be a deductible expense along with promotional advertising, supplies, and Internet expenses. Other items that fall within the parameters of what you may be able to deduct include mortgage interest, home repairs, and home owners insurance.

You can only write off a portion of these expenses so make sure you understand the current IRS guidelines. The amount of your deduction is determined by the square footage of your office space.  You must divide your home office’s square footage by the total square footage of your home. For example, if your home is 3,000 square feet and your home office is 150 square feet, you’d use 5% to calculate your deductions.

“When I was in the 6th grade I was a finalist in our school spelling bee. It was me against Raj Patel. I misspelled, in front of the entire school, the word ‘failure’”.

In conclusion, writing off your home office makes sense but you’ve got to know what you’re doing, and “failure is not an option”. Tax software can only go so far in ensuring that you get all the deductions coming to you. Remember, using a free tax software application such as Turbo Tax isn’t “free” if you find yourself across the desk from an IRS auditor facing huge fees and penalties. Before making deciding to do your own business taxes, ask yourself:

What would Dwight do?

Richard Rossi blogs, writes, and illustrates for various online and transitional publications. Some of his titles include The Twelve days of Christmas in New Jersey, Ouch!, and Stinky Clothes. Find him at his blog where he hangs out in his free time.

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• Tips on Taking the Home Office Deduction (internetbiztaxtips.com)