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Charging Costs to Your In-Home Business

So over at the Depot I got these nifty (read “cheap”) motion-sensitive coach lights for the front of the house. Yesterday Dave the Electrician came over, hard-wired them, and got them working right. The equally cheap nifty lights I installed when I moved in here five years ago are crumbling away under the radioactive Arizona sunlight.

But more to the point, the  house has been rewired by some moronic former owner so that two of the three lights in front have to be turned on from inside the garage. When the house was built, one switch next to the front door turned them all on. Why anyone would change this escapes me. I suspect it was Satan and Proserpine‘s idea. “Green” was their affectation, and one way they liked to manifest that was with few and dim lights. As long as he was dorking with the electric (for reasons unknown, Satan imagined he was a great electrical handyman) (don’t ask about the DIY 220-volt outlet!), he probably figured he could save electricity by wiring two of the lights into the garage, thereby allowing him to turn on only one light to cut down lawsuits from evening guests tripping over the threshold.

Which brings us to the day’s point: Can I get away with having the S-corporation pay for the new fixtures?

I believe I can. Here’s why:

1. The office, which has a hardened lock on a solid-core door, is now accessible by burglars only through a front window. This window is lighted solely by the front lights. The nearest street lamp is on the other side of the house, and the trees in the front yard shelter the office window from easy view. Thus at night access to the office is facilitated by darkness.

2. The only things of value in the building are inside the office, which, in my absence, is otherwise locked behind a contraption designed to break a burglar’s drill bit—or his foot, should he try to kick his way in.

I have no jewelry of any note. My baubles by and large come from the craft store.
The sound system is an ancient stereo that no one would pay money for today.
The television is an old TV/computer monitor my son had in San Francisco, tiny and antique. At a yard sale it would bring about ten bucks.
The furniture is 50 years old. It does not qualify as “antique.” It qualifies as “used furniture.”

3. Besides the fact that the only marketable goods in the house are inside the office, the entire value of my business consists of the data stored on its computer, external hard drive, and flash drives. The very existence of the S-corp would be put at risk if someone came in the office’s window and cleaned out all the electronic gear.

4. The neighborhood is under siege from burglars and home invaders. I can prove this by the constant stream of alerts, warnings, and reports from the police and the head of the neighborhood association.

5. Therefore, installing security lights on the front of the house is crucial to maintaining the security and integrity of the business.

These little lights, which probably will last about as long as the crumbling cheapies they replaced, are great. If anybody comes up to the front of the house, they pop on, so that I can look out a window and actually see who or what is out there.

In the previous regime, if I heard something in the night I could only turn on one light, which did not illuminate the courtyard. There’s no way I’m going to walk into the garage to turn on the other two lights, not if there’s even the remotest possibility that someone’s prowling around outside. The garage has a side door. Even though I put a security door over it, I have to go in and out that side very morning to water the plants, and half the time I forget to flip the deadbolt shut when I come back in. Sometimes I re-enter the house through the back door and forget to close the security door altogether. So, in the middle of the night, opening the door from the kitchen to the garage is an invitation for the burglar to come right in.

Lights that come on automatically if there’s anyone sneaking around out there will allow me to see the person and call 911. And they should deter burglars from breaking in the office window when I’m out.

I like these, because they’re open on the bottom, allowing me to change the bulb without having to deconstruct the whole fixture. Amazon has a cheaper motion-sensitive coach light, but you have to take it apart to change the bulb. That entails work, which goes against my principles.

Now, while it’s true that the new fixtures light the residential part of the house as well as the room devoted to the office, the fact is the only things of any value inside the house are in the office, and if those things are lost, the corporation goes bust. So, I think it’s reasonable to argue that the fixtures can be expensed through the corporation.

9 thoughts on “Charging Costs to Your In-Home Business”

  1. I’ll play devil’s advocate here – if only one or two of the lights light the office area, then I’d say (this is a guess, not a researched answer) that only that/those lights are deductible. Sure, you say the only items of value are in your office. However, a burglar won’t necessarily know that & plan to break into the office area only – how would the burglar know you have nothing else in the house? The IRS can be really sticky on charging home expenses to a home business, so we tend to go conservative on items like this – the minimal value toward the taxes isn’t worth the risk & penalties if an audit denies the claim. P.S., I’ve had my car broken into & all they got was the random loose change sitting on the dash.

  2. This is a tough one and have to I’d say no until I know the facts.

    If your office is inside your house and your S-Corp pays rent to you it’s kind of like you the landlord are doing maintenance to the property.

    You benefit from the improvement but keep in mind your S-Corp and you the living breathing taxpayer are two separate entities.

    Our S-Corp rents office space from the Mrs. and me. The S-Corp also rents 100sq feet of warehouse space in our big garage.

    If the S-Corp came to me (keeping in mind that I am talking to myself just like you would be doing) and said I need a electrical outlet dropped I’d make the S-Corp pay for it.

    If I had a new outlet dropped and I paid for it (or did it myself) and the S-Corp could take advantage of it, I could up their rent or not.

    I’d have to say if your S-Corp paid for the work it would probably qualify.

    If you, Ms. Hay wrote the check I’d say no until you get professional advice.

    I hope this makes sense. I’ve been outside working today and right now it’s 105 and I’ve been sweating like a sub human.

  3. Years ago when I worked for someone else I bought a book called inc. and Grow Rich. I worked for 3 months for a Nevada incorp farm.

    (Woo Hoo incorporate in Nevada) That was in 2003. History now.

    It’s a pathway to incorporation entities and gives guide lines as to how a sole proprietor can form an entity and get rich.

    It’s a good book but when we formed our S-Corp back in 2005 we had a ‘BOD’ meeting and voted we were self insured for the officers.

    That meant the the S-Corp could pay for my glasses and checkups for the girl stuff for the Mrs. and to some limit for medical expenses.

    Seems that has changed as when we filed our 2009 1120 our new (never to be used again for other reasons) said we can’t do that.

    We can however have our annual meeting and chow down on steak and lobster as long as the Chairman (we play many roles and it’s ok as long as it’s documented) ‘tinks’ his or her fork on the wine glass and calls the meeting to order.

  4. When the IRS looks at business use of the home they classify expenses as direct (expenses for the business part of the home only), indirect (expenses for the whole home), and unrelated (expenses for the non-business part of the home only). Direct expenses are deductible, unrelated expenses are not deductible, and indirect expenses are deductible based on the business use percentage (business sq ft / total home sq ft). The lights would fall into the indirect expense category. IRS Publication 587 provides guidance on these expenses.

  5. @ George: Rent? Is that so? That’s an interesting idea!

    Hm. I don’t think I could take advantage of it this year because of the SS earning limitation. But next year…that is very interesting.

    How does that work on your taxes? Does it turn your house into an investment property, in the way that having an individual renting part of it does?

    It looks like the dean has forgotten to push through the paperwork to have the second half of my course development stipend paid. If she doesn’t notice, then I’m going to keep quiet. With any luck, the school will never pay it, and I’ll come in under the earned income limit in 2010. Half the stipend is enough to help out nicely, and a dividend drawdown from the S-corp will carry me through to the end of the year without triggering a Social Security penalty.

    The S-corp paid for the lights, and the three fixtures do directly illuminate the area around the office’s front window. It could be argued, if an auditor actually came to the house and inspected, that they also light the front door…it’s directly next to the office window. So…there may be some element of ambiguity there.

  6. Our home office is an office as we remodeled the house a couple years ago:

    Our office is roughly 10% of the size of our house so we take 10% of, mortgage, taxes, Insurance and utilities and that’s what the S-Corp pays us.

    For the warehouse area in the garage I based it on costs for those U-Store places here in town.

    This was recommended by the Enrolled Agent who did our taxes and set up our quickbooks for us the first year we formed our S-Corp.

    Getting back to your original question since the S-Corp paid for the lights it will probably fly under the radar. Classify it under additional electrical work in office. If it’s under $500 it will scoot right by.

    We had a clutch go out on the Old Ford Exploder that was owned by us but at the time used almost 100% for business use. The S-Corp paid $1100 to get the clutch replaced.

    My punishment for today was to recover the LNB from the Dish at the peak of the roof. Ladders never bothered me until this old age arthritis stuff started happening and then there is my trick knee.

    When I swim underwater in the pool it sounds like walnuts cracking.
    So anyway I figure the only safe way to take this thing down is get up on the roof and creep out to the edge on my belly like a reptile, tie a rope on the Dish and start taking out the screws with my cordless drill.

    I did this as the Mrs. was watching and giving advice and the 3 mini Daschunds were barking frantically at the gargoyle they see on the roof.

    Success. So now I can box up everything Dish wants back and send it back to them.

    We went back to Direct TV and have twice the channels for half the price.

    Just between you me and the lamp post, I’d rather clean a BBQ grill then go up on a hot roof.

    Oh Joy!

  7. @ George: Climbing on the roof is dangerous. Mike the Incredible Bosnian Tile Dude went up on the roof of one of his rental properties to work on the air conditioning. He slipped and fell off. Fortunately he fell feet-first, destroying an ankle but at least not bashing his head. The injury is permanent, but at least he’s alive. His tradesmen buddies regaled him with stories of guys they knew who had died falling from roofs…as did his doctor.

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