New Developments for the Office-In-The-Home Deduction
IRS is constantly trying to limit the deductions that can be taken on a tax return. Several years ago, the rules were changed and a deduction for having a office in your home became much easier to take. The only qualification was that the space must be used regularly and exclusively for business. If you were an employee, the office must have been because you had no other office or it was for the convenience of the employer. Based on these facts, Dr Soliman, an anesthesiologist, took a deduction for an office in his home. He used his home office for research, record keeping, billing, phone calls, appointments, etc. His actual work was performed at several hospitals in the operating suites. None of the hospitals provided any other space for him to perform any of the activities he did at home. The Internal Revenue Service challenged him saying that he did not do business at home, but at the hospitals. The case went all the way to the Supreme Court with IRS appealing lower courts decisions in favor of Soliman. In a very surprising vote, IRS won and Soliman lost. What this means to insurance people can be significant. The new law now considers the TIME SPENT at each location business is conducted as well as the RELATIVE IMPORTANCE of each activity. If you only do paperwork at home and actually do the sales of your insurance products at your clients’ homes and offices, you may no qualify for an office in your home deduction. Your actual work (where the money is earned) is performed at your clients’ homes and offices in this case and the importance of your space at home is less significant. You would need to show that you spend more quality time at home and perform more important functions there than when you are out on the road.
A summary of the new rules is as follows:
1- For the home-office deductions to be allowable, part of the home must be used regularly and exclusively as
a- The principal place of any business as defined by the Soliman decision
1) Consider the relative importance of each of the activities performed at each business location and
2) How much time is spent at each location.
b- A place to meet clients or customers or store inventory.
c- The area may be a separate structure form the home (i.e. your garage) but still must be regularly and exclusively used for business.
If you are unsure if you will be permitted to have a deduction for the office in your home, please call our Tax Hotline at 856-779-2430 to discuss your situation.