Would a Home Office Pay Off?
On the one hand, gas savings and a sweet tax deduction. On the other, a little thing called your career.
(MONEY Magazine) – NOT SO LONG AGO, ANYBODY WHO CLAIMED TO BE "working from home" was merely using the accepted code phrase for nursing a hangover and hiding under the covers until The Price Is Right came on. But these days, with all the technology that's available, from wireless networking to voice over Internet protocol, there's a strong possibility that stuff is actually getting accomplished. Nearly 27 million folks will be working from home offices by year's end, according to research firm International Data Corp. These employees will save not only time--an average commute of 24.3 minutes each way, according to U.S. Census data--but also money. Imagine: Fewer horrifying visits to the gas pump, less to drop off at the dry cleaner, no more pricey takeout lunches. Better yet, those who toil exclusively from home can often take hefty tax deductions. On the downside, however, there are potential costs to your career and home value to weigh. So before you plunk a laptop in the linen closet or set up global headquarters in the kitchen, consider these six questions.
Does telework suit you?
You can have the best equipment, the best setup and the best intentions yet still lack the temperament for telecommuting. "Some of the greatest advantages of being at home can be your ruin," warns Barry Izsak, president of the National Association of Professional Organizers. "You have to know how to manage yourself." If you don't, your productivity could suffer--and worse, you could make yourself miserable. You're more likely to find solo work satisfying if you have the following traits.
• YOU'RE ORGANIZED Are you good at setting and meeting deadlines? Prioritizing? Managing your time? Keeping your files filed? As a telecommuter, you're on your own, with little outside assistance, motivation or imposed order. So you must be able to create your own structure and stick to it. This is even more crucial for the self-employed, who must stay on top of their own invoices and expenses.
• YOU CAN RESIST DISTRACTION At home, dogs need walking, children need attention, plants need watering. Such activities can easily eat up the day. So can Murder She Wrote marathons. "When I hear the TV go on, I shut my door," says Don Cook, who works in sales for a food importer from his Cochranville, Pa. horse farm.
• YOU CAN STOP WORKING For some, having work nearby is an irresistible temptation. But you have to know when to say when. Financial adviser Matthew Tuttle works 10-hour days from his Greenwich, Conn. home, and on weekends he gets up at 6 a.m. to spend quality time--with his computer. "Sometimes I go too far," he admits. "But I try not to let my work take me away from the more important things."
• YOU'RE OKAY ALONE You'll miss out on the big joke at the staff meeting, the latest report on so-and-so's new baby and the chance to drink burned coffee. Office culture can provide camaraderie, comedy, idea generation and peer pressure to work. Some people find all this energizing. If you're among them, telecommuting might not work for you.
Does it suit your job?
To find out, analyze what you do in a typical day at the office, suggests Chuck Wilsker, president of the Telework Coalition in Washington, D.C. Then figure out whether you need to be there to do it. "If you spend most of your time on the phone and the computer, you can work from home," he says. Do you have colleagues on the same level who work from home or in satellite offices? That's another good sign that it's feasible. If your job requires expensive, specialized equipment or constant teamwork, however, it might be less doable.
Will it affect your chances for advancement?
As the person who works from home, you can run the risk of being forgotten by those in the office. You're just not there to bump into your boss in the hallway every day. Because of this, you may have to work harder to make an impression so that you're not skipped over when it comes time for promotions or pay raises. As you consider working from home, speak to any telecommuting co-workers about how they have been received by supervisors with regard to growth in terms of salary or position. A few things Wilsker advises once you're in the thick of telework: Stay in touch with colleagues via instant messaging, attend meetings in person or by conference call, and check in periodically with the boss about progress on projects. It can also help, he says, to have "a buddy in the office you can call to find out what's going on, and maybe share a bit of gossip with." That way, if one of your superiors quits, you won't miss out on the chance to make a case for his or her job.
How much will you save?
Many people benefit financially by bringing their work home. One huge savings for telecommuters involves commuting expenses. They are an especially big deal for those who drive, with the cost of fuel being what it is. You might want to figure them into your decision-making process. Divide the cost of a gallon of gas by the miles per gallon your car gets. That's your cost per mile of driving. Multiply by the number of miles to and from work--that's how much you spend each day.
Another big boon: the home-office tax deduction, which allows you to write off some of the house-related expenses you're already shelling out for. Though the paperwork may be daunting, the payoff can be significant: The average write-off is about $2,000, says Michael Dimmitt, a Denver C.P.A. serving small businesses. And despite common fears, he has yet to see the deduction trigger an audit.
Will you be able to take it? Not surprisingly, the IRS has strict requirements. Whether you're self-employed or salaried, the key is that the space must be used "regularly and exclusively" as your principal place of business. So if you're electing to work at home but have a dedicated cubicle at the office, you are out of luck. Same goes if the kids do their homework at your desk--the area and equipment must be used solely for your job to qualify. You can, however, take the deduction if you use part of a room, so long as you clearly differentiate the area.
Get a sense of what your deduction will be by performing the following calculations.
• STEP 1 Measure the square footage of the space you plan to use, and divide it by your home's area. The result should fall between 8% and 15%, advises Dimmitt. "Once you're up to 20%, you'd better have good documentation."
• STEP 2 Add together your indirect yearly expenses--that is, expenditures that benefit your entire home as well as your home office, such as mortgage interest, property taxes, utilities and depreciation.
• STEP 3 Multiply the result from Step 2 by the answer in Step 1 (percentage of your home occupied by the office). Add in 100% of any expenses you expect to incur in a year just for the office--such as a new printer or Post-It notes.) If you're self-employed, you can write off this full sum, up to what you earn from work done in your home; if you're employed by The Man, you can deduct this amount to the extent that it exceeds 2% of your income.
How much will you spend?
While you are able to deduct home-office expenses outright, you don't want your costs to outrun your savings. To get an idea of how much you'll spend, run a needs assessment: What equipment and supplies are required for your job? Concentrate on priority items. "Think it over, and you know there are certain basics you'll need: a computer, a phone and a fax," notes Don Cook. Of course, if you don't already have an office setup, you'll also need a desk, a comfortable chair, maybe some filing cabinets and shelves, possibly seating for clients. Try to estimate how much these items--plus monthly services like Internet and phone--will cost.
Technology consultant Peter Bryant found that by doing some careful planning in advance, he was able to set up an office in his Denver home for the "very reasonable" sum of $4,000. Bryant keeps his annual operating expenses under control by using Skype to route calls over the Internet for free and by keeping his inventory of supplies to a minimum.
Will your boss okay it?
The good news, according to Wilsker of the Telework Coalition, is that "most telework programs start from the bottom up, with people going to their employers saying this is what they want to do." Anecdotally, he's heard of more people asking since gas prices have shot up--and bosses have been sympathetic, especially if the alternative is losing the employee to a job closer to home. To make an effective request, play up the advantages to the company. Says Wilsker: "There's more productivity because people put in longer hours; turnover and absenteeism drop drastically; and employers save on real estate and parking."
Ask your manager to let you try it out, even for one or two days a week. If the arrangement is working, you can bump it up to full time--and reap the rewards.
How to See Your Clients
If the coffee shop's not an option, consider these alternatives
1 Make Space
Is there another room in the house you can convert to a conference room? A basement, perhaps, or an empty bedroom? If not, try to arrange your office in such a way that more than one guest can sit comfortably. Experiment with layouts using the online space planner at Ikea.com. But before you take any action, check local zoning laws, which sometimes limit the scope of home businesses.
2 Rent a room
For his client meetings, financial adviser Matthew Tuttle of Greenwich, Conn. leases space from the Regus Group, which runs executive suites in 60 countries. He pays a set monthly rate to have a mailing address and a receptionist to answer his calls, plus a variable amount for his occasional use of space. Nothing like this in your area? Rent a room at your local public library, as technology consultant Peter Bryant of Denver has done.
Bryant recently made an arrangement with a local law firm whereby he can use one of their offices in return for introducing his clients to them. You might be able to work out a deal where you provide services for free to a company in exchange for use of space as needed.
What's an Office Do to the Resale Value?
As long as you don't make any permanent changes, your office should not have any effect, says Pebble Beach, Calif. realtor Tom Bruce. "You just have to set it up so that it can easily be switched back to whatever it was before." The next owner may prefer to use it as a guest bedroom. So don't go eliminating closets or building bookcases over the windows.
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