# Home Office Expenses



## FFMralph (Dec 22, 2012)

I work completely out of a home office. Approx. 40hrs a week. This situation was requested by me for personal reasons. In agreement, my foreign employeer does not provide me with office or work space. 

On my German taxes I count my office as 20% of my toal home costs. The room however, contains a TV and some personal items. I asume that I cannot legally claim the home office in my US return but what about all of the costs? Are these, even the utilites, considered business related expenses that can be deducted on some 1040 schedule?


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## Bevdeforges (Nov 16, 2007)

Publication 587 Publication 587 (2012), Business Use of Your Home gives you all the information on the home office expenses you can deduct. For US tax purposes, you fall under the same rules as if you were living back in the US.
Cheers,
Bev


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## FFMralph (Dec 22, 2012)

Yeah Bev, I checked that out. I hang on the *exclusive* part. I have some items in the room that have nothing to do with my employment. For instance my personal Computer and some medical supplies. Still there must be some way to deduct my expenses because 100% of my work is spent in this room. Only the room is used to a very small extent for personal reasons.


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## Bevdeforges (Nov 16, 2007)

Read over the section on "exclusivity" carefully. They do say that your work area doesn't not have to be walled off from the part that is used for other stuff. If you contend that your "personal use" stuff is all in one small area within the room, you can probably manage.

Or, there is always the approach that you just take the deduction and see what they say. As long as it looks reasonable on your forms and you're playing by the rules everywhere else, chances are they won't question it.
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

My experience is with Canadian taxes, but probably applies. Pick a reasonable number between 20 and 30 percent and apply it to all household expenses. It's not just the floor space in the room where you work. Ever need to pee during the office hours - that's a percentage of your bathroom. Ever need a coffee during office hours - that's a percentage of your kitchen. Ever need to leave the house for a business trip - that's a percentage of your hall, front porch, and yard. And so on.

My sister-in-law accountant once suggested that 30 percent might be a flag so I've always said 29 percent. Except for one year when I switched programs, didn't notice that the question was phrased the other way round, and accidentally claimed 71 percent. Oddly, I was not audited. I only discovered it a year later.


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## Nononymous (Jul 12, 2011)

FFMralph said:


> Yeah Bev, I checked that out. I hang on the *exclusive* part. I have some items in the room that have nothing to do with my employment. For instance my personal Computer and some medical supplies. Still there must be some way to deduct my expenses because 100% of my work is spent in this room. Only the room is used to a very small extent for personal reasons.


There's another way of looking at this:

Is the IRS going to send someone to Germany to check if you have personal items in your home office? 

I didn't think so.


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## BBCWatcher (Dec 28, 2012)

You'd be surprised. IRS agents like Oktoberfest, too.


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## Bevdeforges (Nov 16, 2007)

Nononymous said:


> My experience is with Canadian taxes, but probably applies. Pick a reasonable number between 20 and 30 percent and apply it to all household expenses. It's not just the floor space in the room where you work. Ever need to pee during the office hours - that's a percentage of your bathroom. Ever need a coffee during office hours - that's a percentage of your kitchen. Ever need to leave the house for a business trip - that's a percentage of your hall, front porch, and yard. And so on.
> 
> My sister-in-law accountant once suggested that 30 percent might be a flag so I've always said 29 percent. Except for one year when I switched programs, didn't notice that the question was phrased the other way round, and accidentally claimed 71 percent. Oddly, I was not audited. I only discovered it a year later.


US tax law is notoriously more stingy with these sorts of benefits and deductions than other law. This notion of "exclusivity" of purpose is pretty much written in stone. The best thing to do is pick a "reasonable" number you can defend (and floor space is probably the easiest of the lot), and go with it. It may open your tax return up to further review, too, so you want to keep everything as above board as possible. 
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

Bevdeforges said:


> US tax law is notoriously more stingy with these sorts of benefits and deductions than other law. This notion of "exclusivity" of purpose is pretty much written in stone. The best thing to do is pick a "reasonable" number you can defend (and floor space is probably the easiest of the lot), and go with it. It may open your tax return up to further review, too, so you want to keep everything as above board as possible.
> Cheers,
> Bev


Well, were it not for FEIE, there'd be another reason for me to remain non-compliant then!


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## FFMralph (Dec 22, 2012)

I agree with Bev and I don't want my return to stand out. 

You all should not be so happy about the FEIE. This only coveres your earned incomes. The moment you enter retirement or your savings start earning interest or your stocks start receiving dividends you are screwed if your foreign taxes aren't high enough. This is why I need to raise my deductions. My FTC is barely covering my passive incomes.

I think I will claim the home office adding a statement from my employer, a photo and a layout of my apartment. That should resolve any doubts the IRS may have.


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## Nononymous (Jul 12, 2011)

Ergo non-compliance, in my case (dual citizen resident in Canada etc. etc.)


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## BBCWatcher (Dec 28, 2012)

Of course there's the option to rearrange your home office a bit to conform with the rules.

Regarding income not from work, there's a simple and effective technique to address any taxability of that income: make it U.S. source. That is, put your savings into U.S. accounts. I've yet to find any country with lower cost savings vehicles than the U.S., and U.S.-based financial assets don't require FBAR and/or FATCA paperwork. They generate lovely IRS-ready paperwork (such as 1099s) denominated in U.S. dollars, but if you want to invest 100% in Swedish kroner-correlated assets (for example) no problem. (It's probably cheaper than doing the same in Sweden.) There's little to no risk of PFIC complications either. And the only place in the world where you can save in U.S. tax-advantaged accounts such as IRAs and 529s is in the U.S.


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## Bevdeforges (Nov 16, 2007)

FFMralph said:


> I agree with Bev and I don't want my return to stand out.
> 
> You all should not be so happy about the FEIE. This only coveres your earned incomes. The moment you enter retirement or your savings start earning interest or your stocks start receiving dividends you are screwed if your foreign taxes aren't high enough. This is why I need to raise my deductions. My FTC is barely covering my passive incomes.
> 
> I think I will claim the home office adding a statement from my employer, a photo and a layout of my apartment. That should resolve any doubts the IRS may have.


One word of caution, though. If you are taking a home office deduction and the FEIE, you may have to allocate your deduction between the part of your income that is FEIE and the part that applies to anything over and above the FEIE. (For example, if your earned income is above the FEIE limit.) Publication 54 should explain this.
Cheers,
Bev


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## Bevdeforges (Nov 16, 2007)

Investment income is fine if you switch it all to US source. But those of us who receive retirement or other benefits from our country of residence don't have the option to shift the source like that. Add to that, the little matter of the WEP (Windfall Elimination Provision).

Right now, my main goal is to make sure that my residence country pension will exceed the amount the US SS will deduct from my US benefits for the fact of having a "foreign" pension. Officially, the US shouldn't have the right to tax a foreign pension (at least the way the treaty is worded), but the way to report it to assure that the US won't demand their taxes is far from clear.
Cheers,
Bev


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## FFMralph (Dec 22, 2012)

Were off subject now but as far as pensions go, I believe the treaties only cover SSN equivalents. My research has brought me to believe that private pensions and employer pensions are taxed on the full amount recieved during the tax year. Hear you can only claim the FTC.

@Bev. Your word of caution about FEIE and home office deduction was also my thought, but then again why not? You don't have to give up part of the standard deduction when claiming the FEIE.


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## Bevdeforges (Nov 16, 2007)

The French system is pretty clear on how you avoid double taxation - on private pensions or on government ones. But the US system seems to limit you to FEIE (for earned income) or FTC for anything else. Sometimes that simply doesn't work out the way it's supposed to.

On the other issue - if the FEIE covers your entire salary, you're right. But, if your salary is over the FEIE limits, it's not that simple. (At those income levels, you're most likely itemizing deductions anyhow - and that's where you have to apportion the amounts you're deducting.)
Cheers,
Bev


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## FFMralph (Dec 22, 2012)

Let me summarize.

If I take the FEIE and deduct my home office, I have to apportion the amounts of deductions that relate to my excluded earned income. Other deductions not related to the excluded amounts are claimed in full. Got it. It is also so stated in Pub 54.

If I take the FEIE and claim the standard deduction, I do not have to apportion the deduction because there is no way to determine how much of the standard deduction is related to earned income. (At least that is the way I have done it thus far) 

Result: If I have no unexcluded earned income and my non earned income deductible expenses are less than the standard deduction it doesnt help at all.
Furthermore, if the percentage of nonexcluded earned income is small the home office isn't going to help much.
The way I see it is "*Home Office only when claiming the FTC alone and nnot using the FEIE*."


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