Taxes - In Home Office - Tax theory?

Question

I have a sole prop and park my equipment in the yard. The equipment is destroying the grass so I was going to pay and have my driveway extended so I could have a place to park my equipment. I am claiming the In Home Office expense already. Can I deduct the cost against my business? If so, how? Would I need to have the business pay me personally rent for the use of my personal area and then deduct the expense against any rental income I choose to "have the business pay me"?

Answer 1

Parking your equipment on your property is "ordinary and necessary" according to the IRS, as it is a reasonable accommodation even if you have other options.

However, you cannot pay yourself as a sole proprietor, as other answers have pointed out.

The cost of paving your property is depreciable over 15 years, also mentioned in another answer. You would add this asset separately and depreciate it separately from your home.

You are not allowed to expense the paving improvement, it is specificaly disallowed under Section 179 and must be depreciated over 15 years.

Answer 2

The one unfortunate thing about a sole prop is you and the business are the same tax entity. Therefore, you can NOT have the business pay you rent. You'll need to incorporate for that. Paying you rent instead of income is one of the big reasons single employee business incorporate.

Now, as far writing off the costs of paving your driveway to park your business vehicles, that's a gray area. Ultimately, the final decision will be made by the person in the suit across the table from you during your audit. Aggressive people will deduct it (actually, you can't deduct land improvements. They must be depreciated over 15 years. And you can NOT use the 179 expensing to pull the depreciation into the first year*) and cautious people won't. Ultimately, the question will be, "Is parking your equipment on your land necessary?"

The IRS will ask if you can park it in the street or other area. If you feel convinced that parking on your property is necessary, and the costs of paving will, over time, be cheaper than renting space from someone or building a garage, then I'd go ahead and pave away and depreciate it on your tax return.

* Why do I say 179 isn't good for land improvements, because the IRS says, "Land and land improvements, such as buildings and other permanent structures and their components, are real property, not personal property and do not qualify as section 179 property. Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences."

Answer 3

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Answer 4

US Tax answer: It definitely deductible. But it is also depreciable. You'll probably be able to expense it all via a section 179 deduction, but you'll need the depreciation form none the less. You could also rent it to your company but you'd want to upgrade to an S corp.
There's a good reason to do this - liability. A lot of sole proprietors think that their home owners insurance covers them but often it doesn't. So if your S corp is renting space from you, and you (the S corp) don't have insurance, and have a problem, creditors can't come after your house. That said, if you (the individual) are renting space to a business, you need to add a 'rider' to your policy to cover that, too.

Answer 5

On your form 8829 put the cost of extending the driveway for equipment parking as a direct expense instead of a pro-rated one.