True. But they could adopt that policy going forward… That’s what I was hinting at, not that it was a policy, but they just didn’t have it in writing.
There may be reasons the employer may not want to (IC vs EE, and similar), but it may be worth bringing up.
OK yeah. But it seems OP doesn’t know for sure what the policy really is exactly. He should find out first. It could have other implications. e.g. what if this is really for his convenience but management changes and they decide to stop “letting” him WFH… In any case he should ask to find out. But the tax question may now be irrelevant if he can’t actually hit the 2% AGI level.
There is probably not much point in worrying about this at this point, but for what it’s worth, I’m quite sure that my employer doesn’t have an explicit policy requiring me to have a home office. Because, why would they bother? But that doesn’t change the fact that (a) there is no practical way I can avail myself of their office space short of selling my home and moving and (b) I don’t’ think that I could do my job without a dedicated home office. I can’t even imagine trying to do what I do sitting at the dining room table.
So as a practical matter I don’t think that I could hold my current position without a dedicated home office and presumably my employer finds it a convenience that I work for them or they wouldn’t keep paying me. In any event, none of this matters because of the 2% rule, which also explains why I had so much trouble finding examples similar to my own.
It sounds like you are saying that the home office is for your convenience. You could go to the office and work, but you prefer to live too far from the office for that to be comfortable.
Or they’re like a company I worked for eons ago. The hired me because I lived in an area where they did not have an office. The nearest office was 4+ hours away. They did not have a policy on a home office, but did expect me to acquire, organize and cultivate leads. I could not do it without a home office. However, it was not used exclusively for work, so it didn’t meet the IRS definition.
I wonder if IRS does home visits.
I’ve never heard of it personally, but they may do them. They do have field audits which mean the IRS agent will go somewhere. If you don’t have a representative and only work from home, the meeting may have to take place at your home. If they’re specifically auditing, or decide to question during the exam, the home office deduction, I’d imagine they’d want to see pictures, etc. It’s possible they’d want to come to your home.
Just FYI though, if you’re subjected to a field audit, you really should find representation. You’re dealing with a high level IRS agent and likely multiple levels of review. They do this for a living, they are professionals, and they’re good at what they do. Ideally (though sometimes not possible), the taxpayer should never speak to the agent. There’s protection in using a representative which is why even a controversy expert hires someone to represent them in this type of exam.
This is a very important part of the rule. The space must be used exclusively for work. Let’s say your kids like to use your desk on the weekend to draw or read, you no longer qualify for the deduction.
I think you’d have a good case if it was used exclusively during reasonable working periods. Your example of kids at your desk on a weekend is ridiculous.
As a tech employee, if you have a home office setup with computers and displays in a sectioned off room, I don’t think you’d have any issue. The IRS isn’t going to request your browser history to see that you used the computer 100% for work sites, just like people do some personal activities at their office location (but company still gets the full deduction).
The $5/sqft simplified rule is nice if you aren’t making too much - little record keeping which also means the IRS doesn’t expect you to document all the time you use that area.
Interesting thread though - wondered it myself before, but I think I noticed the 2% issue previously. I thought the OP may have found a new simplified rule even better, but guess not 
There is no way that I would chance it as the text is pretty clear in my eyes. Here is the actual text from the IRS Pub 587:
Exclusive Use
To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.
Example.
You are an attorney and use a den in your home to write legal briefs and prepare clients’ tax returns. Your family also uses the den for recreation. The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den.
_ _
Exceptions to Exclusive Use
You do not have to meet the exclusive use test if either of the following applies.
You use the part of your home in question for the storage of inventory or product samples (discussed next).
You use the part of your home in question as a daycare facility (discussed later under Daycare Facility ).
_ _
Note.
With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test.
If you look at the room, and there are kids’ toys, hobby materials + work stuff, then yeah that’s going to stand out and clearly not qualify.
If you look at the room and it’s set up clearly as an office, then nobody is going to monitor that your kids came in and wrote something seated at your desk, and even if they did see that I would wager that either IRS would not prosecute or you would win out for occasional non-work use.
Otherwise, to fully comply with this 100% you’d have to have a way to lock off the area and show that you exit the room and lock it off at all times. Give me a break, that’s not practical.
If you are deducting a large portion of your home, then I’d obviously be a lot more careful with documentation and keeping it as separated as possible. However, for the “no-doc” $1500 limit, I wouldn’t be concerned.
The IRS is very clear on its position. “Exclusively” means “exclusively”. Courts have, as you might expect, gone both ways. Notably, though, there was a case (this isn’t my arena, but I remember it because the facts of the case are humorous): an IRS agent’s wife claimed a home office deduction for (counseling/tutoring/something like that) and the court denied the deduction because they threw a party in that room one night/year. I’ll try to find the name of the case later.
The standard is not the same. The home office deduction is structured as an exception to a deduction disallowance for business use of a residence. The analysis is, for the most part, unique to this particular area. The disallowance doesn’t apply at all to C corporations.
With respect to the documentation, I’m not familiar with the simplified rule, but most of the time these types of rules are only applicable to the amount of a deduction, not whether the taxpayer qualifies for a deduction in the first place. For instance, with vehicle mileage, the per mile rate is allowable without additional documentation as to cost, but you still have to document that those miles traveled qualify for a business deduction. Again though, I’m not familiar with this specific rule so you may be correct.
This is only the IRS’ position, it’s not necessarily the law. In fact, the IRS can and has argued points in court (and won) that are directly contrary to its instructions/publications.
So if I sit in my home office, take a break and listen to an album or watch a movie, it is no longer qualified? And it is my responsibility to protect my office from any young child in the house entering unless necessary for the business? So I need to lock my room and monitor it, etc. when I walk out of it and also when I am finished working for the day? Or if I detect that someone has indeed sat at my desk and drew me a picture then I need to declare that this is no longer a home office?
Give me a break. As you’ve implied, “exclusively” is subject to interpretation and no IRS agent or judge would declare you in violation because of your child sitting at your desk and drawing a picture (the ridiculous scenario which I replied to).
The PURPOSE of a room can be for work, and it’s possible that still non-work activities occasionally and randomly get performed there. If it is very clear that the sole purpose of your room is for work, then you’ll be fine. If, however, it is clear that the room is also meant for other purposes, like having a kids’ art area in it, or a sewing machine set up for your hobby, etc, then yes you may run into trouble.
Like all of the tax code, it only becomes an issue if you are challenged. Like I described before, if you are set up to show a clear purpose and physical area of the home (such as a set up workstation and office supplies/etc for a home tech worker like the OP), then you’re simply not going to have an issue.
You’re again describing a different test. The test refers to how it’s used, not the purpose, and the distinction is meaningful.
Yes, the term “exclusively” is absolutely subject to interpretation (just like any other word). I did not imply how the IRS or any judge would rule on whether that activity would disallow a deduction. Especially because it may depend on where the taxpayer lives. Without having intimate knowledge of the law interpreting the disallowance and exceptions, I probably would focus the argument away from the exclusivity test because the rule is still not clear.
As I said, courts have interpreted the exclusivity requirement differently. However, the IRS’ position is clear. The IRS position may not seem fair, and I agree with you, but that is their position.
The IRS has certain priorities they’re looking at when they audit and examiners are asked to look out for cases where the facts of a case would warrant a good opportunity for the IRS to get a favorable rule on the interpretation of some provision. The flip-side is that the IRS may not want to take cases where they believe the law supports them, but where the facts are less likely to convince a court - they’ll settle the case and wait for better facts.
If this is your position - that the IRS wouldn’t challenge it because the facts don’t look good for them, you may be right (I don’t know the priorities and what their current thoughts are on this deduction). Generally, though, for the IRS to take these considerations into account, you’ve already already disagreed with the auditor, have filed in Tax Court (or another venue), and are negotiating with an attorney.
Are we arguing what the IRS position is or what a taxpayer can “get away with”? The two are pretty far apart in this case.
I’m allowed to deduct a home office, but after discussing w/ my CPA (few years back), he was adamant to not do so, as it will cause eventual headaches (during sell of house) and makes you more likely to be audited. Granted, I was also planning on doing “quarterly company meetings” is another city/state. But, even w/o the latter, he didn’t want to do it.
I’m sure a lot depends on the type of business you run, etc…but I like knowing if the tax man knocked, I’m clean.
Yes.
What happens if you sell the house and move elsewhere? (Asking for a friend)
I don’t work for the IRS, but suppose that under your scenario, they would then meet at your new home office, or have you come to their location. In my limited dealings, they prefer to meet on their turf, unless they are looking specifically at a location based deduction (home office, farm, etc.) or suspect that you are living well beyond your declared means. In the latter case, just drape towels over your Picasso(s). 