Home office expenses can include wages paid to family members, office furniture, decorations, equipment, internet service, extra phone lines or phone services such as, caller ID or call waiting. These expenses can be deducted even if home office space itself is not deducted.

Specific Details

The parents shifted $5,000 of income to their child by paying wages to their child for home office expenses. Since the parents income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%). Since the childs taxable income was taxed at the 0% tax bracket, there may be no tax on the income. Therefore, because of the income shifting, the total family tax savings may be $1,500.

Potential Savings

If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by wages paid to family members for home office work.