As a small business CPA, we are familiar with taxes and how to save money on them. In this article, we will reveal some of the most important tips that you can use to save money on your taxes, whether you’re a small business, a large business, or self-employed.
Can Home-Office Tax Deductions Include Garage Space?
Here’s something to think about as a small business – do home office tax deductions include garage space? Your small business CPA should know (we do!)
- Do you claim a tax deduction for a home office?
- Should you include or exclude your garage space in your calculations of business-use percentage?
Ronald Culp “EARNED” an office deduction for 78 percent of his home. That’s an excellent percentage, but what’s interesting is how the court looked at Mr. Culp’s home in deciding that 78 percent business use.
Here’s how the court made the computation that produced the 78 percent business use of Mr. Culp’s home:
• The court counted the garage as office space because it could find no basis in law or fact for excluding it. (The garage held two printing presses and a large paper cutter integral to Mr. Culp’s business.)
• Regarding the utility room in the basement where the water heater and furnace were located, the court said this space failed the exclusive business-use standard for the home-office deduction. Such space counted as personal space.
• The attic, which measured 1,128 square feet, contained only 100 square feet of usable space. The court ruled that the other 1,028 square feet were not functional because that footage was not accessible due to the slope of the roofline or the lack of flooring.
Observation. The printing took place in the garage, but the I.R.S. said that such space was not usable, and the I.R.S. did not want it counted in the calculations. The taxpayer and the court agreed that space should be counted in the calculations. Will this be true for other garages?
According to the court’s description, Gene Moretti rented a 5.5-room house consisting of two bedrooms, a den, a living room, a dining room, and a half-kitchen. The court noted that “the house also had a garage” and that Mr. Moretti claimed business use of the den, living room, dining room, and garage.
The court concluded that only the den met the regular and exclusive use requirements for qualification as an office in the home.
To calculate the business percentage, the court used the number-of-rooms method and calculated that one room (the den) of the 5.5 rooms represented the business-use percentage of this home. The court ignored the garage even though Mr. Moretti tried to claim it as office space.
The two-garage case. To save time, the court tried two separate day-care cases together. Each case involved the use of a garage.
In both of these court cases, the I.R.S. excluded the garages from its computations.
The court took the opposite view. First, it included both garages in the business-use-of-home calculations. Although it found that one garage met the requirements for the home-office deduction and one garage did not, the critical point is that both garages were included in the calculations.
Because the process can be so variable and difficult, you need a small business CPA on your side. It will pay off every time.
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