THE HOME OFFICE DEDUCTION

Taxpayers with an office in the home may be able to seek some tax savings through household expenses. A percentage of the homeowners' insurance, utilities, rent, cleaning expenses, and even depreciation costs of part of the home could be deductible.

A room dedicated exclusively and regularly as the principal place of business operations will qualify as a deductible home office. Alternatively, a room used as a place to meet or deal with customers in the regular course of business will also qualify.

The Supreme Court has established two factors that determine whether a home office is the most important location for a business. First, the activities performed at the home office must have a greater relative importance than the activities performed elsewhere. For example, the services provided by a surgeon in the hospital are of greater importance than the billing paperwork performed, by that same surgeon, in the home. Even if that same surgeon lacks another location to perform the billing paperwork, the IRS will deny the home office deduction.

The second factor involves the amount of time spent working in the home office, when compared to the amount of time spent working elsewhere. This second factor typically applies to situations where the first factor, known as the relative importance factor, can not be clearly defined.

In addition, any non business use of the home office will disqualify the taxpayer from taking the deduction. Occasionally watching television in the home office will cause the taxpayer to lose the ability to deduct the home office on a tax return.

Finally, if the home office is a separate structure not attached to the home, it is not necessary to meet with customers or to consider the Supreme Court factors to qualify for the deduction. The only requirement is that the exclusive and regular use of the space relates to the taxpayer's business.



(c) Copyright 1995-2015 by TaxLogic