Claiming your apartment as a buisness expense?

Just a quick question, i'm not looking to scam by any means but instead play by the rules.

Me and my gf have a 1 bedroom with an office. I use the office as a headshots studio and for conducting my buisness (fax/photoediting/ect)​. I'm classified as a sole propioter and use my SSN as my tax id. I get 1099's

My ex gfs dad is a writer and his garage is his office. The IRS? came and evaluated a percentage of his home which is used for buisness and can claim X% of his mortgage payments.
So lets say %25 of my apartment is used for conducting buisness, and my lease does NOT state that I can't use my place of residence as a commercial buisness and my landlord has stated he will put in writing that I can conduct buisness from my apartment legaly....

How/Where do I go about starting and does anyone do this?

Talk to a CPA. Mine told me that it was generally a bad idea to use residency in deductions. It can be done but it's considered risky.

Go to legalzoom, incorporate as an S corp, open a real business checking account, get QuickBooks/pro and then pay rent (oddly) to yourself.

This keeps the correct paper trail for the deduction clean.

While you're at it, look up the Hobby Loss Rule, because if you're just doing 'side' work and you consistently lose money, it won't matter how you slice the deductions.

Good luck.

Todd Lambert wrote in post #11020394
Talk to a CPA. Mine told me that it was generally a bad idea to use residency in deductions. It can be done but it's considered risky.

Its almost essential to check with CPA or accountant to double-check the facts.

About 12 years ago, ours told us what was required and it worked out excellently, at the house we rented.

We needed a separate space, not just equipment scattered everywhere. So one room and the entire garage were dedicated to business, with personal stuff kept out of those rooms.

That allowed deducting a percentage of the rent, and I think some utility.

Its probably not a bad idea if you do it the right way. And its probably a bad idea if you would be sloppy about the arrangement.

Ditto on the CPA. My wife works from home and we have one room dedicated to her business. There are a few things she needs to do to make it legal and the CPA helps with that. It's a nice deduction.

My tax preparer told me that the home office had to be used 100% for business and for nothing personal. For instance, if you use the office computer for processing your hobby images, then the deduction is disallowed.

If you are going to use a portion of your residence for business purposes it is best to set aside one are specifically just for business. I keep a spare bedroom as my office. So much easier to deduct the sq. ft. and portion of utilities that way.

Talk to your local CPA and he'll point you the right direction.

PS: Most apartment/house rental agreements will state that you cannot operate a business from that premise. Usually for two reasons 1) They are not zoned for commercial and 2) They do not want to have you disrupting the neighbors with customers dropping in and out all the time.

Now, if your business is strictly through a mail order, internet PO Box type of thing then no one knows, or needs to know.

JWright wrote in post #11023036
My tax preparer told me that the home office had to be used 100% for business and for nothing personal. For instance, if you use the office computer for processing your hobby images, then the deduction is disallowed.

Whether or not you actually perform your job at your residence is a mitigating factor.

All my years in TV, it was understood that while I "worked out of my house," I obviously was not hosting major sporting events in my living room.

I've had this discussion with my CPA and he agrees that I'm now in similar straights because I don't have air shows or fly-ins at my house.

I can still claim the deductions afforded to self-employed people.

As a CPA, it still amazes me when I read that other CPAs say this is risky or creates higher audit risk. If you do it correctly and by the rules, you should be fine. It may cause a higher audit risk coupled with other factors, but not on it's own as the deduction isn't enough to generate the interest and time generally.

HOWEVER, do it strictly by the rules in case you do get audited.

I'll chime in as well with a talk to a CPA for their opinion on how best to proceed.

But a few things to remember:

1) Home office deductions are one of the red flag items that the IRS is scruitinizing VERY closely (ie they're audit bait)

2) The area must be used ONLY for business. There can be no other activity in the area. So, if you're set up in an unused corner of the living room in your one-bedroom apartment, forget the deduction. If, on the other hand, you're sleeping on the couch in said one-bedroom apartment, and have converted the bedroom into studio/office space that only you use and you only use for the business then you can continue to pursue the deduction. If she so much has a knitting needle in that room, or you use the closet to store your winter coats, forget it. It has to be 100 percent dedicated to the business.

3)If you still qualify, you have to figure the square footage of the entire apartment, and the square footage of the space you're using. So, if it's a 1,000 SF apartment, and you're using a 10x10 bedroom (100 sf) you can deduct 10 percent of the rent as a business expense.

4)Don't try to deduct part of your phone bill, unless it's a line dedicated to the business. Deducting portions of the rest of the utilities/taxes/insura​nce/maintenance are allowable, but again, something best left to a discussion with your accountant/tax advisor.

And remember, your business has to show a profit. Your deductions can't exceed the amount of income your business brings in.

POTN is a great place for advice, but not tax advice.

Talk to an accountant. I just claim a percentage of the floor area of my hosue (ie the office) as a business expense, as that's the law here in NZ.

Apollo.11 wrote in post #11023244
POTN is a great place for advice, but not tax advice.

Why not??

Several individuals on here giving good advice so far...many of which have experience on the topic at hand.

Some years ago I built a house and designed the down stairs floor as a studio, darkroom and office.. I don't know how taxation laws work in the States but I was able to deduct the percentage from the total of the house..

I was able to deduct electricity, water, insurance, council rates, wear and tear and a percentage of the interest rate off my mortgage.. I even claimed public liability insurance..I did this for 12 years without any questions asked..

yogestee wrote in post #11023457
Some years ago I built a house and designed the down stairs floor as a studio, darkroom and office.. I don't know how taxation laws work in the States but I was able to deduct the percentage from the total of the house..

I was able to deduct electricity, water, insurance, council rates, wear and tear and a percentage of the interest rate off my mortgage.. I even claimed public liability insurance..I did this for 12 years without any questions asked..

It's very similar here but there are very strict rules and certain paperwork that has to be kept. It takes some doing to set up so a CPA is a must.