Monthly Archives: February 2015

Our Latest press release:

The “Home Office Gurus” Offer Advice
to Make April 15 Less Taxing

“The Home Office That Works!” Authors Talk
About the Home-Office Deduction and Other Issues

February 19, 2015 — Wake Forest, NC, and Saratoga Springs, NY — There are best and worst practices for coping with tax season, and those working from home offices often must be more careful than other taxpayers. They need to keep precise records of income and expenses via QuickBooks or another accounting program (a best practice) and avoid handing their accountant a plastic grocery bag full of hundreds of random receipts at 11:50 p.m. on April 15 (decidedly not a best practice).

The authors of The Home Office That Works! have coped with a combined total of 40 tax seasons, and have practical advice for making tax time as painless as possible, both in their new book and in personal presentations.

The Home Office That Works!, 2015 Edition, available from amazon.com, is an informative, entertaining, and indispensable guide to work-at-home life for novices and home office veterans alike. We asked authors Dr. Joe Webb and Richard Romano questions about their tax advice.

What is your number one piece of advice for home-based business owners?

First of all, neither of us is an accountant or tax expert. We speak from practical experience about tax preparation, deductions, and other matters, but our top recommendation is to get good advice from an experienced tax preparer or certified public accountant. Ideally, you’ll have an ongoing relationship with them over the course of the year; if your income fluctuates from month to month—or your third quarter ends up being far better than you had expected, for example—they can help adjust your quarterly estimated tax payments so you’re not overpaying and potentially running into cashflow issues during the year, or underpaying which can create tax penalties which always seem to come at the worst possible time.

What deductions are available for home-based workers?

The most important is the home office deduction. If you use some portion of your home for business purposes, you can deduct some amount from your taxes. In 2013 (2014 tax year), the IRS introduced the so-called “Simplified Option” which features a flat rate per square foot of your home rather than a rate based on overall percentage of your home; simplified reporting of other business deductions; no depreciation deduction; and more (details are at www.irs.gov). Equipment, computers, office supplies, utilities (like electric), phone/Internet, and other business “essentials” are deductible to varying degrees, depending how much is for personal and how much is for business use. Workers should thus keep track of their space and their time.

How much latitude do home office workers have in deducting expenses?

Common sense should prevail. If you use a computer mostly for Facebook or streaming movies on Amazon Prime or Netflix, and only once in a while for checking work email, it’s not a deductible expense. (Neither is your Amazon Prime or Netflix account.) But there are gray areas. This is why having a good tax accountant is a must; guessing what is deductible, stretching or double-dipping deductions, and so on, may come back to bite you in the end years later. On the other hand, we’ve found that many home office workers overlook some items that are deductible.

What about telecommuters? Or do home office deductions only apply to home-based businesses?

If you are a full-time employee of a company and telecommute part- or full-time, you can still take the home-office deduction, and some other deductions related to your work. However, if you get reimbursed for any of these expenses by your company, they are not deductible. For things that are not reimbursed, workers should ask their tax advisor about IRS Form 2106, unreimbursed business expenses.

Not everyone I worked for gave me a tax form. Does that mean I don’t have to report that income?

Companies you contract with are required by law to send independent contractors a 1099 form (nonemployer compensation, it’s called), in lieu of the W-2 form you receive from HR when you are a full-time employee. That said, not all companies are diligent about sending 1099s, which is why you need to carefully keep track of whatever income you receive and from whom, because you are still responsible for declaring it. It’s also in your best interest to doublecheck the amount on the 1099 form(s) against your own records. Companies can make mistakes but they need to be corrected promptly.

Any other advice?

Be organized, and don’t put off tax prep until the last minute. Companies have until January 31 (or the following Monday if the 31st falls on a weekend) after the end of the relevant tax year to send all tax forms, so set aside some time the first week of February to start pulling everything together. It’s a good idea to prepare a rough return in November and have a quick chat with your accountant so you can make tax time a lot easier. Accountants are less likely to give you their full attention when they are busiest during the March/April tax season.

Advice about tax planning and preparation, and virtually every other aspect of running a home office, can be found in The Home Office That Works! Make Working at Home a Success—A Guide for Entrepreneurs and Telecommuters.

Availability…

The Home Office That Works! Make Working at Home a Success—A Guide for Entrepreneurs and Telecommuters is available in paperback at http://amzn.to/17Axu01, or an Amazon Kindle e-book available at http://amzn.to/17AxBss. Visit the authors’ website at homeofficethatworks.com.

About Dr. Joe Webb

A home office worker since 1987, Dr. Webb is a consultant, entrepreneur, and economics commentator. He is a doctoral graduate in industrial and corporate education from New York University, holds an MBA in Management Information Systems , and a degree in managerial sciences and marketing. He has taught in graduate and undergraduate business programs and resides in North Carolina.

About Richard Romano

Richard Romano has been a professional writer since 1990 and officially launched his home office in 2000. He has also authored or co-authored a many books about graphics hardware and software, and is a freelance writer of ads, e-newsletters, magazine features and news stories, and research reports. A graduate of Syracuse University’s Newhouse School of Public Communications, he lives in Saratoga Springs, New York.

Editor’s Note…

Additional information is available for editorial purposes. Please make inquiries directly to the authors at authors@homeofficethat works.com.

Speaking Events and Business Contact:

The authors are available for speaking at events, webinars, and business meetings. The book is an excellent promotional vehicle for retailers and service providers targeting the needs of small and home businesses. The authors can also create custom versions of the book. Dr. Webb and Mr. Romano also offer coaching services for teleworkers/telecommuters, either one-on-one or in small groups; advisement for veteran teleworkers; consulting services for businesses considering hiring teleworkers/telecommuters; and more. For more information about these services, contact the authors at authors@homeofficethatworks.com.

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The Perception of Doors

In the classic late 1970s/early 1980s sitcom WKRP in Cincinnati, news director Les Nessman had a desk in a large bullpen he had to share with the rest of the staff. Believing a news director should have a proper office, he put masking tape on the floor around his desk delineating where walls and a door should be. He insisted his co-workers respect those boundaries, and he would even mime opening and closing the door.

Now, that’s obviously a bit of TV comedy, but the concept of defining boundaries is critical when thinking about a home office. A door or other boundary marker is essential to getting work done.

The door is an important part of the office set-up, and everyone in the household needs to understand what that closed door means. A closed door means “Daddy or Mommy—or spouse, or significant other, or even roommate—is on the phone or is otherwise engaged in important work and should not be disturbed.” This concept applies to couples without kids as well. Obviously if there’s a medical emergency or the house is on fire, common sense has to prevail. But otherwise a closed door, perhaps with some sort of “do not disturb” sign or other indicator, such as a red cardboard circle hung from a doorknob like those seen on hotel doors (or perhaps even the “On Air” lights that TV studios use), should be treated as inviolable.

If you are forced to position your a desk in a common area of the home, you’ll need to be more creative in developing boundaries. Perhaps you and a neighbor could work out a kid swap, allowing both parents to enjoy some quiet time. But if not, some sort of “do not disturb” signal needs to be devised and enforced.

License to Ill

Just about all businesses, home-based or not, are subject to licensing and permit laws, which also vary tremendously by location. Permits and licenses are often required for taxation as well as data collection purposes. If you sell taxable physical products, you will need a permit to charge sales tax. If you keep an inventory of goods, your locality may charge an inventory tax. If you are running an in-home service business, such as a hair salon or a plumbing business, you will need the professional licenses required by those industries. And if your business involves federally regulated products like alcohol or firearms, you will need the appropriate legal paperwork for those items as well.

If you are running an illegal business like a numbers racket or pharmaceuticals of questionable origin, sorry, we can offer you no advice, but the zoning board may be the least of your worries.

If you are a telecommuter working for a parent company located elsewhere, or are a basic information worker like a writer, designer, or public relations agent, whose main avenue of commerce is the Internet, there are fewer restrictions and less paperwork is required. Again, we can only speak in very broad general terms here, but a good place to start is the SBAs “Permit Me” online tool that lets you enter your ZIP code and business type and determine what permits and licenses are required.

Once you have determined that it is legal to operate your business from your home, and you have all your paperwork in order, it’s time to actually go ahead and set up the office—which we will cover in future posts.

Sometimes it may be possible to work at home but have the actual business at another address. There are some office buildings that rent space by the hour or the day. Seeing clients? Use that kind of facility, and you might be able to use that address as your official business address, avoiding all kinds of issues down the road. (We’ll look at this option in a future post.)

Dr. Joe Recommends: Alternative Office Software

For PC users, there are good alternatives to Microsoft Office, especially for home use. I’ve used the free OpenOffice for years, but prefer its better version, LibreOffice, available for Mac, PC, and Linux. I’ve always found the word processor, Writer, to be far more stable than Word. The spreadsheet, Calc, is okay for workbooks where charting is not important. Impress is a good presentation program.

WPS Office (formerly known as Kingsoft Office) is free for home use, and has excellent compatibility with MS Office files. All of its elements, Writer, Spreadsheets, and Presentations, are notably fast. WPS uses the same keyboard shortcuts as MS Office, and has a choice of interfaces, including one that is similar to the MS Office ribbon. It works in Windows and Linux, but also has smartphone versions for Apple’s iOS and Android.

FreeOffice has good word processing and presentations elements, runs in Windows and Linux, and also has a version for Android smartphones. If you need the superior charting capabilities of Excel, you now have a different alternative from Microsoft that recognizes the multiple-device way many of us work now.

Office365 is now available for a monthly fee for multiple devices. It also comes with OneDrive cloud storage space. I use it because you can have multiple computers and devices as part of the subscription, and also download the full version to your computer very easily. There are also iOS and Android versions. Microsoft’s new strategy makes managing licenses and other issues much easier, removing one of the main reasons to seek software alternatives. But many of us have older computers in the house and in our families (does my 87-year-old mother need MSOffice? I don’t think so) that need the basics. The alternatives noted above fit the bill very well.

In the Zone

In the last post, we looked at the effect of zoning laws on the ability to start a home business. But the government isn’t the only one who sets rules about these things.

You also need to be aware of restrictions placed by homeowners or condominium associations, as their regulations can sometimes be far more draconian than anything imposed by the government. Before setting up your home business, be sure to consult any of these groups as well as your local planning board. It’s best to invest in a little due diligence at the outset rather then become embroiled in a nasty lawsuit later.

Zoning laws vary widely by state and municipality as well as by type of business, so we can only speak in very general terms here. The Small Business Administration (SBA) has an extensive set of online resources, including their “Home-Based Zoning Laws.” Your local Chamber of Commerce might be able to help, too.

Generally, if you’re a home worker on a computer with no clients visiting you, you’ll be fine. When there’s a flow of traffic to your home office, however, you could have a problem. Your best start will probably be with an attorney or an accountant (both of whom may also work out of a home office).

Location, Location, Location

Before you get too far into the process of setting up your home office or business, you need to ensure that you can actually—and by “actually” we mean “legally”—run your business in your home. There was a time when zoning laws prohibited a large variety of home-based businesses, but over the years the restrictions have been relaxed. The limitations on what types of businesses you can run from home are fairly obvious and are really intended to minimize the extent to which a business is a nuisance to the neighbors.

At the same time, technology has tremendously expanded the number of opportunities that can be pursued unobtrusively in the home. If you’re a freelance writer or graphic designer, sitting in your house with a computer is not bothering anyone. But if you are running a fat-rendering plant in your backyard, well, that might raise a stink, in more ways than one. Gray areas include running a hair salon in your basement.

The rules regarding home-based businesses fall into three basic categories:

  • Exterior modifications and displays. This includes restrictions on building additions onto your home, conducting business or storing items outside, erecting commercial displays, signage, and so forth.
  • Traffic. This includes restrictions on the number of commercial visitors (customers) you can have, issues related to parking and traffic, and the number of employees you are allowed to have in your home.
  • Environment. This includes restrictions on excessive noise, odors, flashing lights, hazardous materials storage, etc.

These are pretty obvious concerns, and they make sense from the neighbors’ point of view. This is why certain parts of municipalities are zoned for commercial use while others are zoned for residential use. Zoning laws might not allow commercial vehicles, like a van or truck used in the business, to be parked in the street, or even in plain view in a driveway overnight. As vehicle graphics become more affordable and prevalent, you might think it worthwhile to have your business logo and other graphics applied to your vehicle, but the downside may be that you may not be allowed to park it outside overnight.

Dress for Success—Or, Basically, Just Dress

Whenever people talk about working from home, they always seem to stress the advantage of being able to work in their pajamas. True, it’s really just a metaphor for the idea of being comfortable at work, as opposed to having to dress up in a “monkey suit” (another metaphor, unless you work for a circus) to go into the office. And wasn’t the idea of “casual Friday” designed to address (or undress) this?

Anyway, not having to worry about investing in a business wardrobe or pay weekly dry cleaning bills typically ranks high on the list of advantages of working from home. However, an important piece of advice we’re going to give you is:

Don’t work in your pajamas.

A recurring theme in all of these blogposts—and indeed in our book—is that working at home should indeed be working at home. And one of the ways of making working at home feel like work is to dress as if you were at work. Now, this is not to suggest that you should wear a suit and tie in your own home office, although we do know some people who do. There’s something to be said for pulling yourself out of bed and dressing appropriately to approach your business day. Wear trousers or a skirt (or at the very least jeans) instead of sweatpants, a polo or button-down shirt instead of a ratty T-shirt or tank top, proper shoes and socks (sneakers are OK) instead of flip-flops or slippers. And so on.

Not only does proper attire help get you into the psychological mindset required for the discipline of the home office, it communicates to others in the household (and neighbors who might ring your doorbell) that you are at work and thus should not be interrupted. It also conveys a professional appearance if you have to quickly jump onto a video-enabled Skype or FaceTime call.

That all said, though, if the home office scenario came about through your job loss, working in your pajamas can make you feel like you’re “sticking it to the man.” And, well, if that attitude motivates you to new levels of productivity, then go for it!

What Kind of Worker Are You?

Not all people who work from home are the same. We don’t just mean that they’re in different markets or industries, but there are different legal and logistical work-at-home arrangements which need to be taken into account when planning a home office.

We can identify three basic work-at-home types:

  • an individual running a home-based business
  • a freelancer/independent contractor or professional
  • a part- or full-time telecommuter

The following summarizes the distinctions among the three categories.

  • Home-Based Business—A small company that offers products or services to clients. Examples: graphic design companies, accounting firms, business consultancies, or manufacturers of specialty food items.
  • Freelancer/Independent Contractor/Professional—An individual who provides professional services to clients, ranging from consulting, to writing, to graphic design, to photography, to public relations, to marketing services, to professional public speaking, to…you name it. Examples: lawyer, accountant, consultant, designer, independent sales representative.
  • Telecommuter or Teleworker—An individual who is a full-time employee of a company, but doesn’t own or run the company, and works from home either part time (say, two or three days a week) or full time. The company’s headquarters may be local or located across the country, or even overseas. Examples: company PR representative, IT specialist, or salesperson.

There is some overlap between the first two categories, but the primary difference is that the home-based business tends to be set up as a distinct business entity for tax purposes, while the freelancer/independent contractor/professional typically, but not always, is an individual who reports business income on his or her personal income tax return.

The last category, telecommuter or teleworker, may differ in some significant respects from the first two, especially in terms of tax, insurance, and even some logistical respects (office hours and availability, e.g.). Often, company sales reps fall into the category of teleworker, as their job description requires them to travel and visit clients the majority of the time. Salespeople in different parts of the country from the home office (their territories) may report to a local or regional sales office, or may in fact consider their home (or even their car) their office. And, in fact, an off-site call center may actually be someone’s home office.

Bugged at Work

Richard here.

For a few years, my home office had been in the finished basement of a split-level house in the suburbs. The desk faced the window, and as I worked, my back was to the rest of the basement. One Sunday afternoon in the summer, I was trying to figure out how some software worked and for a time was in the zone and oblivious to what was going on around me. After a few hours, I caught a glimpse of something out of the corner of my eye: it was a wasp landing on the window. That jolted me back to reality and as I was rolling up a magazine (after trying to find a printing industry trade magazine that was thick enough to actually kill a wasp, which was a challenge), I heard a weird noise from behind. I turned, and saw that the basement was completely aswarm with wasps that had somehow made a nest in the electrical junction box. I grabbed the laptop, ran upstairs, and called Terminix.

Needless to say, that pretty much killed productivity for the rest of the day. Fortunately, it was a Sunday.

Money Talks

One potential hindrance to working from a home office can be money, or rather the lack of it, especially if your intent is to launch a home-based business rather than just telework. So before launching a home-based business, make sure you can feasibly afford to do so. You may need to take out a small business loan, and/or you may have a spouse or significant other who can help float you along, but you want to make sure that you have enough money to live on until your business becomes sustainable. It is generally advisable to have at least one year’s worth of income in savings before you launch a business. This should be ready cash in an everyday savings or checking account; you do not want to dip into any retirement savings.