by Phillip B. Burum, Executive Vice President, Diversified Pacific,
President, Building Industry Association (BIA) Baldy View Chapter
Soon, the New Year will be upon us and that means most Americans will begin the arduous task of preparing their tax returns. If you own your own home, or will own your own home next year, be sure to get advice on how it will affect your taxes. With the right tax planning and forethought, the benefits of home ownership can go far beyond the sense of pride and generally awesome investment returns.
For homeowners, creating dedicated office workspaces in the home has been one of the most popular remodeling projects. Home offices are also among the most prevalent options purchased with new homes. In short, we know you are going to be working from home so if you own your own business, you need to pay attention how that office may or may not impact your tax returns.
For years the Internal revenue Service (IRS) has offered tax deductions for dedicated workspaces in the home and savvy homeowners consider these deductions as a factor in determining what size and configuration they need for a home office. Last year’s Tax Cuts and Jobs Act changed how the IRS treats home based offices, effectively eliminating deductions for employees with home-based offices. Many deductions remain in place, however, for business owners.
We have not met but, even with that lack of personal connection, I am hoping that you will take this next piece of advice to heart as it is likely the most important advice I will ever provide. Do not take my advice on your taxes. Even if you do know me, please follow my wife’s advice - which is to not take my advice.
I am generally in favor of retaining a professional in nearly all circumstances that have options for hiring a professional. If I could have a professional write this column for me, believe me I would. I am not a DIY kind of person. You may be better equipped for this type of analysis than I am but, even in those cases; I strongly recommend that you seek input from a tax professional.
At the very least, for those that might enjoy reading government code sections, consider visiting the Internal Revenue Service’s (IRS) website at www.irs.gov. If you choose the route of the website, you should download the most recent copy of Publication 587 - Business Use of Your Home (Including Use by Daycare Providers).
The updated publication will detail which expenses can be deducted from a homeowner’s taxes and provides an informative guide to what criteria must be met if a business owner will be claiming deductions on their income tax. With a working knowledge of how your home-based office might affect your tax planning, you can now design your workspace around your needs and the most financially beneficial plan.
Remember, to get the best tax advantage from your home office or workspace you should consult with a professional. If you are filing yourself, take the time to at least consult with a professional before you file.
Likewise, you’ll want to consult a certified remodeling professional because the enterprise itself and any major improvements that require additional construction may require permits from your local authority. An oversight in building a home office could create huge problems when the home goes on the market. So, once you have settled on a plan, contact a licensed contractor and check their contractor's license number online at www.cslb.ca.gov or by calling (800) 321-CSLB (2752) to ensure you are getting the best possible results and protection for your investment.
Along with homeownership, a home office should be considered as a major investment in your financial future. You should approach every detail in the same manner you would any investment or business. Make a plan, develop a budget then stick to the plan and the budget.
The BIA Baldy View Chapter seeks to advance the opportunity to attain the American Dream of home ownership. For additional information on home buying or the benefits of homeownership, go to www.biabuild.com on the web.