Your house is currently a single story, correct? Financially, you might be better off tearing off the roof and adding a second story rather than adding on, as long as your foundation can handle it. Put most of the bedrooms upstairs and reconfigure the downstairs footprint to house everything else. I agree your reconfigured space is lacking in design. For all the upheaval, you aren't gaining much in terms of cabinet space as compared to what you have now. The dining area looks more appropriate for a family of four than for a family of seven. This is one of those cases where moving really might make the most sense if you feel your home isn't working for you. I've lived through these types of renos with a big family; it's tough going. You are looking at months and months of major disruption in addition to the costs. I don't want to discourage you, but I don't want you to be caught off guard either.

The 8 x 10 looks fine to me. I'm sure you have seen this graphic before (see below), you don't even need to put the entire sofa on the rug if you want to go a little bit smaller. Consider just the front legs of the sofa on the area rug like the middle sketch shows below

Thank you very much. I'm taking the 3 photos from the entrance into the room from the foyer opening. I'll add a pix tomorrow. No, we don't plan on watching TV in this room.

Can you rearrange? Maybe TV where couch is so that chairs and couch could be put where convenient to see fireplace and TV. Also you need table lamps or floor lamps. Overhead lights are too harsh. Maybe an end table or two.