|Oregon State Bar Bulletin NOVEMBER 2009|
Home may be more than where you hang your hat. Home may be where you hang your shingle or do all, some or part-time lawyering. Before considering the financial, tax and practical aspects of working from home, look at the different home office situations — the law firm at your home, the home law office, and the telecommuter working from home.
Law Firm at Your Home
A law firm shingle on your front lawn may not be apt to describe law-firms-where-you-live situations. It isn’t as if someone comes to your suburban house in a quiet residential neighborhood, steps around toys in your living room, and heads down the hall to your den cum law office. There is a distinct segregation. These law firms at your home are more commercial than residential. The first impression is of coming to an attractive law office rather than a lawyer’s attractive home. The focus is on the law firm with the living quarters separate and private. Some lawyers have law offices in a quaint Victorian or bungalow, with living quarters fully separate from the ex-parlor/now cozy receptionist area and former bedroom/now spacious lawyer office. The effect of practicing law from a residence linked to the city’s earlier history can be charming and well-received by the clients. Other set-ups may not be steeped in historic charm, yet fully capture the flavor of their mixed-use neighborhoods, with a garage or detached in-law unit converted into a separate, self-contained law office complete with law firm signage.
At the opposite extreme of office options is the über cool conversion of industrial space into a modern blend of residences and businesses in many cities. For sheer scale of urban renewal projects, it is hard to top the panache of the Pearl District in Portland where ultra-modern lofts combine living quarters with business. Having a home office in the Pearl or other similar space may be a key element of your branding image, part of your strategic marketing plan. What would better speak to your commitment to sustainability and light carbon footprints, for instance, and being part of the eco-minded culture, than establishing your law practice in a recycled industrial building that thrives in the re-visioning of “live-work-play”?
One caveat is always the personal safety of seeing clients in your home.
Home Law Office
Setting up a home office is a popular strategy for lawyers who are just starting up their sole practice. Usually the lawyer works from home but does not see clients there. Many choose to view establishing a home office as a temporary stage during the initial four to six months of getting established enough to move into a costlier office space, for instance. Some lawyers re-evaluate their home office set-up and decide to continue it because it fits their family’s need for a more consistent presence, especially if there are young children in the home or (hay to mow in the fields).
Telecommuter Working From Home
Technology and telecommunications go hand in hand. Specialized remote access software, such as Go to My PC from Citrix Online or VPN Client from Cisco Systems Inc., coupled with the convenience of an iPhone, Blackberry device, Palm Pre or other smart phone, and the workhorse laptop have enabled telecommuting to become a win-win program for increasing productivity, profitability and quality of life for lawyers everywhere. Still others embrace newer technology, allowing a firm to collaborate remotely with the ability to access client file information with software-as-a-service (SaaS) vendors like CLIO from Themis Solutions or Rocket Matter, providing case management over the Internet. (For more information on the subject of SaaS, see the August/September 2009 issue of the OSB Bulletin, “SaaS in the Office: Internet-Based Case Management and Billing Software.”)
Telecommuters working from home include members of large national firms, small two-person offices and sole practitioners. There are resources for developing a telecommuting program, such as the ABA’s book, Telecommuting for Lawyers by Nicole Nelson Goluboff for $9.95, which contains forms and worksheets in addition to common sense advice.
“I am working from home today.” Chances are you’ve seen this message on your in and out board at the office. Having a flexible work policy that allows employees to arrange to work at home when needed can keep work moving along. There is usually something that can be done in the day elsewhere. Working from home lets your colleague continue working on his brief while being home for the furnace repairman and while taking care of the sick child or the new baby. What is the impact from addressing quality of life? Better lawyers and staff who are efficient, productive and motivated.
Financial Aspects of Working at Home
The biggest component of your fixed costs is your office and related overhead. Especially for the sole or small firm practitioner, keeping these fixed-costs at a minimum may well prevent financial disaster during the start-up period — or during times of a down economy. This may be a time to re-evaluate your commitment to maintaining a brick-and-mortar office as the best location for your practice. Or, it may be a time to lighten your overhead load. Conventional planning wisdom holds the average benchmark for office overhead to be nine to 12 percent of gross revenue. (Office overhead here means everything but personnel.)
You may want to run the numbers and look a three-month period: What is your average monthly gross income? What is your monthly rent or lease payment with utilities? Is your office overhead no more than nine to 12 percent of your gross revenue? There may be other issues you should consider than just having your firm’s number be within the expected average. Is your office square foot rental charge competitive with that of other buildings in your area? Is what you can afford comfortable to you, your staff and clients?
Look at the total actual time that you serve clients in person at your office. You may quickly conclude that out of five hours spent serving a client you only spent one hour in person at your office. Pull your billings records for a sampling of your cases. Of the total time charges for a client matter, how much was designated as in-office consultation? Think of weekly commuting costs. How many clients came into the office? Could you schedule appointments on limited days? Could you reduce your office space, consolidating space used by all attorneys in your firm? Could you and your colleagues occupy fewer offices by planning telecommuting and shared offices? If you could reduce your office space use by 40 percent — by eliminating two days, might the space be rented by another attorney? Of course you would need to address issues around confidentiality and office sharing, but it could be done with locking file cabinets, separate computers, and the use of a clear office sharing agreement. [See the PLF Practice Aids and Forms about Office Sharing.]
If you can schedule limited days in an outside office, you may decide to look for an executive office suite that will allow you to have a part-time office set-up or a virtual office that offers a package of bundled services, such as use of a professional business address, mail collection and handling, local phone number and receptionist to answer your phone, and a few days of private office use. Increased numbers of office buildings with space available means increased opportunities to negotiate beneficial lease or rental agreements.
Tax Aspects of Working at Home
Should you take a tax deduction for a home office? Writing off home office expenses has long been believed to be an IRS audit red flag. If it has been a fertile ground for taxpayer blunders, that’s not surprising because the regulations are confusing and taxpayers often don’t see why they can’t simply deduct expenses for the room known as the office. The problem is that you can only deduct business expenses that apply to a part of your home if that part is exclusively and regularly used as your principal place of your business. For example, you use your den only for drafting estate planning documents and responding to client e-mails and phone calls. That would be considered exclusive use. However, if you share your den with your family to watch movies on the five evenings a year the living room has been taken over by the Cub Scouts, you will lose the exclusive use test of your den, and you will be unable to claim a deduction for the business use of the den on the other 360 days of the year. No mixing business use with personal use. If you use your home office in your den exclusively for your law practice and physically meet with clients there, even a couple of days a week, then your home office qualifies for a business deduction. If the home office is a separate structure not attached to your home, that you use exclusively and regularly, then you do not need to use it as a place where you meet your clients or as your principal place of business in order to qualify for a business deduction.
If you are deducting the business use of your home, do not overlook your depreciation deduction. You may not want to do the math to calculate the amount of depreciation, which is a factoring of wear and tear over time of business property. You will be calculating the depreciation of your business property like your computers and printers, which are considered five-year property, along with office furniture and file cabinets, which are considered seven-year property. Your business use of your home office is depreciated over 39 years. If your home office was in use prior to May 13, 1993, then it will be over 31.5 years. Depreciation should be calculated and deducted because when you sell your home you are treated as if you took the depreciation deduction. This is known as depreciation recapture. Take the deduction you are entitled to, as you will be taxed as if you took it.
You may find the tax implications sufficiently complicated to persuade you to abandon any consideration of deducting the expenses for the business use of your home. You may decide there is no substantial advantage to getting a business deduction for a small portion of your house — for example a dedicated home office in a 12 x 14 foot room is 168 square feet. If your home is 2,200 square feet, then your home office is eight percent of the total area of your home, meaning your deductible business expenses are limited to eight percent of the total expenses for operating your entire home. Still, eight percent of the total expenses adds up over time. Tax advisers hate to see their clients leave deductions unclaimed. If you have a tax advisor, talk it over; if not, download IRS Publication 587, “Business Use of Your Home,” especially to preview the treatment of depreciation recapture when you sell your home. If interested in depreciation, see also IRS Publication 946, “How to Depreciate Property.”
Practical Aspects of Working at Home
The biggest practical issue of working at home is arranging for client appointments. Lawyers who work from home may arrange to meet clients at some public area, not wanting to meet in either their home — or their clients’ — for safety concerns. Some options include their clients’ places of business, another lawyer’s conference room, or using the amenities of a virtual office or some other executive office suite location available in the area. Others arrange to meet clients in public places like a meeting room you might have access to as a Chamber of Commerce member, a meeting room at the library or courthouse, or even meeting for lunch at a quieter restaurant, considering confidentiality when determining the reasonable option.
Another consideration is what professional address to use. Some lawyers choose to use a post office box so that their home address is not provided to clients. Others consider a post office box to appear transitory. Lawyers should then consider the limited use of a virtual office chiefly for having a professional business address and mail handling. As long as your business card provides your contact information, your phone number and e-mail address, your client may not care that you list a post office box rather than a physical address.
An often overlooked aspect of working from home is how quiet and removed from the mainstream it is to work from home. Working from home can be alienating for lawyers who thrive in a more social environment. You may need to combine a home office with an offer in town if the isolation becomes too much. If you like working from home otherwise, consider planning networking opportunities or research time at the courthouse library so that you can have a cup of coffee or tea and a friendly interaction with a colleague. Stay connected with your local bar association! You might find it takes a couple of weeks to strike the right balance of solitude and activity. Give it a try.
Lastly, can you discipline yourself to stay in your office and out of the garden? Can you ignore the siren call of laundry and dishes and cleaning the garage when you have briefs to write? You can live a more balanced life and spend 30 minutes picking string beans while contemplating your points and authorities. If you find yourself seriously distracted, you might want to sign up for the OAAP’s “Getting Things Done” series, which is offered throughout the year. If you are overly distracted at home, chances are you have been overly distracted at work as well. You may be finding that there are more sanctioned office distractions, like checking in with your colleague down the hall. At home, you tend to become more aware of your distractibility quotient as you find yourself more obviously off-task heading off to the dog park. But if you’re getting the work done, the exercise at the dog park is just what you and your dog need. It may well contribute to your balanced day at your home office.
ABOUT THE AUTHOR
Sheila Blackford is an attorney working as a practice management adviser for the PLF. She is a member of the ABA Law Practice Management Magazine editorial board and State and Local Bar Outreach Committee.
© 2009 Sheila Blackford