If you’re thinking of setting up a home office, it’s important to do it right. If you don’t, it can cost you money and decrease your productivity rather than enhance it. Here are some tips to get you started.
Select the right spot: Make sure it is well lit and has enough room for furniture, your computer, file cabinets and other items you use on a regular basis. Windows are great for natural light but can cause glare on a computer screen, so plan accordingly.
Get connected: Equip the space with enough electrical outlets to support your computer, printer, Internet router, fax machine, desk lamps, and any other equipment that requires electricity (future appliances that have yet to be invented will likely need more electricity, not less). Any costs incurred to add outlets or even heating and air conditioning to your office space are tax deductible.
Furniture: Measure the space you have before buying furniture. Once you’ve determined the furniture you’ll need—desk, office chair, file cabinet, printer stand, storage shelves, and any other furniture essential to your business—layout the locations of each piece of furniture on paper. Try several floor plans before asking your friend to help you move furniture. This will save you time and help you maintain your friendship.
Avoid mission creep: Keep business files in your home office; do not bring them with you into the rest of the house. It can be tempting to take them with you to another room, but it’s a bad idea for two reasons. First, it’s important to draw boundaries between personal and professional spaces so work doesn’t overwhelm you. Second, on the practical side, if you never take files out of your office, they are harder to lose. Keeping files in the office (and keeping the office as neat and clean as possible) will help you be more productive. This is one of those “do as I say, not as I do” moments.
Tax deductions: The IRS allows you to deduct expenses as long as they are related to the part of your home that you use exclusively for your regular business. This includes mortgage payment taxes, insurance, depreciation, utilities, furniture, computer equipment and supplies. Be sure to keep records on exactly what you purchase for your business. I use a separate credit card to make it easier to track business expenses.
Once your home office is set up and you have become a master of productivity, you can extend the benefits of working from home to your business travel. Many real estate agents have home offices, but few are as meticulous as they should be when it comes to recording mileage related to business travel. I suspect this is true for others as well. Business-related mileage is tax deductible and can really add up at the end of the year. You can use an app on your smart phone to record miles, or go old school and keep a little paper journal in your car where you simply write the date, starting mileage, ending mileage and purpose of your journey each time the trip is business-related.
If you have a home office, you can deduct miles between your home office and your downtown office: it’s considered travel between offices. If you do not have a home office, you cannot deduct commuting miles to work. If you live on Dora Street and commute to School Street, this is not a big deal. However, if you live in Potter Valley and commute to Ukiah, it’s significant. Forty miles a day (roundtrip) multiplied by $0.50 per mile adds up to about $2,000 of tax savings a year. If you don’t keep good records but estimate mileage, you better hope you never get audited. Auditors always check mileage records.
If you have questions about real estate or property management, please contact me at firstname.lastname@example.org or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.