If you’ve ever been in a situation where you’re asked for a “second opinion” on someone else’s business or tax strategy, you know how uncomfortable it can be – especially if you think the advice they’ve been given was incorrect. Finding a way to present an alternative with courtesy can be a delicate task!
I found myself in that position this past weekend. I was staying with some friends who just started a new business. We were talking about new tax developments for business owners, and wound up talking about the home office deduction. Even though their home office literally takes up about 10% of their home’s square footage, they had been advised not to take it. Their tax advisor felt that they had enough deductions that they didn’t need the home office, and that it wasn’t worth take the depreciation deduction, when it would have to be recaptured upon a later sale.
There are times when that makes sense … but I didn’t think this was one of them. You see, these people also travel about 80 miles a day, each day, to and from their business office. And, while your first commute of the day isn’t deductible, when you have a home office, that commute can be you walking down the hall with a cup of coffee to check email and make a few calls before heading in (something I do every day!). After that, the drive (and most other outside trips) do become deductible. By establishing a home office, they will be able to write off that 80 mile commute. At the current rate of 58.5 cents per mile, they’ll have a company deduction of about $235/week, which isn’t considered taxable income to them.
We did the math and they were surprised at how quickly that deduction grew. This year, they will definitely be taking the deduction. After all, it’s going to put a nice sum of money directly into their pockets!