Extreme home office makeover

In a new twist on teleworking programs, some organizations are paying employees lump sums to furnish a home office.

Although such an arrangement seems much easier for employers than buying equipment, software and network hook-up for each individual teleworker, there are a few tax and legal issues employers should consider before passing out cash.

In 2008, there were 33.7 million employee teleworkers, according to a 2009 WorldatWork study, which also found that the number of U.S. employees who worked remotely at least one day per month increased 39% from 2006 to 2008.

According to the Telework Research Network, 40% of U.S. employees could do all or part of their job functions at home, with a potential savings of $700 billion annually for American business.

Beverly Steele, manager of national accounts at CORT, a Berkshire Hathaway company and national furniture rental provider that has worked with 80% of Fortune 500 companies, advises employers who are considering a teleworking program to look at their turnover rates and the average rate of time that employees stay at the company to determine whether to rent or purchase the furniture.

Most commonly, employers pay workers a lump sum to outfit their home office. CORT polled 700 individuals at the IFMA World Workplace conference, and 75% had permitted teleworking, and 80% of them had lump-sum policies.

If given a lump sum to pay for home-office furniture, an employee needs to keep meticulous records, and the employer should as well, advocates David Selig, federal tax practitioner, Selig & Associates, Inc. "I do need to emphasize this: Disclosure of facts and excellent recordkeeping are going to be essential, because this is something that is going to be scrutinized very closely by the IRS to make sure this is not an assignment of income of any sort," he says.

If there is a remaining amount from the sum after purchase, it will be included in taxable income and deducted from income. Nonbusiness items must be considered taxable income.

If used appropriately, a company can claim the home outfitting as a business expense and an employee can write it off as nontaxable income.

It must be suitable equipment. Selig recommends that employers pay attention to detail to ensure that the items are legitimate business expenses. Equipment must conform to business use with no dual-use property.

Upon termination, if the property belongs to the company, employers should have a procedure in place to get it back, especially if they are writing off the depreciation.

If an employee leaves the company before the life of the equipment has expired, the property must be returned or the remaining value of the property is charged to the employee as income.

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