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Going the work-at-home way

<strong>Telecommuting requires serious thought for setting up an effective home office. “Today” financial editor Jean Chatzky offers tips</strong></p>
/ Source: TODAY

How long is your commute? Fifteen minutes? Half an hour? According to a 2005 study by the U.S. Census Bureau, Americans waste more than 100 hours commuting to work each year -- hours that you could spend volunteering, hanging with your kids or -- what the heck -- catching up on sleep.That's just one of the reasons (along with e-mailing in your pajamas and enjoying leftovers for lunch) working from home has become a national pastime. Roughly 38 million households in the United States have a home office.Unfortunately, there's a little more to it than plugging in the laptop and taping a professional-sounding message for the answering machine. If you want to work effectively from home, you need to put some serious thought into how to best set up that home office. If you want to be able to write it off come tax time, there are a few other things to consider.Here's what you need to know:

Set up shop in a spare roomThis is your best alternative from both a productivity and tax perspective. A finished basement works great; a bedroom, which often has a closet that can be used to store supplies, may be even better. There are zoning restrictions to consider and permits to purchase, but regulations vary widely by location.

"You always need to check zoning when you're setting up a home office, and you need to check with the various municipalities that may have jurisdiction over your property," says Jeff Zbar, author and founder of the Web site This includes your county and city planning departments, and, if applicable, your co-op or homeowners association. But it's not all grunt work -- if you follow the rules set forth by the IRS, you can claim a deduction on your taxes and get some of that hard-earned money back.

Get a grip on room requirementsThey include: Good lighting, several grounded power outlets, the capability to be wired with a phone line and a door, especially if you're prone to distractions. If you plan on hosting clients, take note of the room's position within the house as well. "Locate your office as close to the front door, or the door where they'll be coming in, as possible, so that you're not dragging them through your family room and your kitchen and other bedrooms, or by a playroom -- you just want to be able to have them walk in and, ideally, your home office is right there," says Lisa Kanarek, home office expert and author of "Home Office Solutions: Creating a Space That Works for You" (Quarry Books, 2004).

It's also important to be comfortable, so if you can't work when you're hot -- and who can? -- choose a location that will get hit with air conditioning come summer. Once you've made your selection, measure the space while it's empty -- this information will help when you're purchasing equipment, and it's required for tax purposes.

Opt for function over styleSit down and list everything you use frequently, from paper clips and Post-it notes to furniture and storage devices. Paul Edwards, career strategy coach and co-author of "Working From Home," (Tarcher, 1999) estimates that a home office can be equipped for around $1,000, especially if you pull from what you already have -- that bookshelf gathering dust in the living room, for instance, can be tapped to hold extra supplies in your office. Use this mentality for electronics, as well.

The one exception is a good chair, says Kanarek: "If you're going to be sitting in front of your computer for many hours a day, you need to spend money on a chair that is ergonomically correct, that can be adjusted and moves along with your body, versus a dining room chair or a kitchen chair."

Go online to compare products, services and pricesA fast computer with lots of storage space, a necessity, can be had nowadays for about $500 if you shop around. Edwards suggests consolidation whenever possible -- you may need a scanner, fax machine, printer and copier, but buying them separately will cost north of $400 and take up more space. "You can get a perfectly good, multi-functional device that serves as your printer, fax machine, copy machine and scanner, for a couple hundred dollars," he says. Likewise, if your inventory of the house didn't turn up a suitable desk, buy one with a built-in filing system.

Services can also be bundled, so you pay one (usually discounted) bill for Internet, phone and voice-mail (check out the search engine at for help). And while you do need a business-only phone line, you can choose to ignore those who recommend a separate fax number -- in the age of e-mail, it often just isn't necessary. Last, if you're concerned about security, equip the home with a reliable alarm system. Be sure to keep receipts and canceled checks for all of the above.

Adhere to Uncle Sam's standardsTaxes always seem horribly complicated, but in this case, it's actually pretty simple. In order to claim a deduction for your home office, the room must be used exclusively and regularly as your principal place of business.

This is strict, says Kanarek: "It has to be a separate space -- it cannot be part of a guest room or a spare bedroom that is occasionally used for overnight guests. And even if it's in a separate room, but the closet within that room has personal items, you cannot use that for a deduction." There is one out: If your home office isn't your primary work space, but you regularly use it to meet with clients, it's still eligible -- but again, only if it the space is used exclusively for business. Also, keep in mind that your business' gross income must be greater than your deductions.

Start keeping good records so that you can reap the rewards If your home office qualifies for a write-off, you can also go ahead and deduct expenses directly related to your office -- such as the business phone line and Internet connection. For costs that are indirectly related, like utilities, you have to figure out your deduction by comparing the room's measurements to the size of your entire home. The resulting percentage -- say your office is a 10th of your house -- is the portion of your home's expenses, such as mortgage or rent, electric, insurance and the security system, that you can deduct.

And don't forget about that new computer, desk, and multi-function printer (or any other business-only purchases expected to last more than a year), all of which make the situation slightly more complex: The IRS encourages you to depreciate the value of these over several years, until you either stop using them or recover your costs. For personalized instructions on home office deductions, it's always best to consult with a tax advisor. Unfortunately, the days when a home office is an audit red flag haven't completely disappeared.Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, .