Academic journal article Journal of Accountancy

News from the Home (Office) Front

Academic journal article Journal of Accountancy

News from the Home (Office) Front

Article excerpt

NEWS FROM THE HOME (OFFICE) FRONT

One area of perennial interest to taxpayers (and to the Internal Revenue Service) is the home office deduction for individuals who do not work in an office setting or from some other business location. The IRS has always been wary of these expenses, and has carefully monitored and strictly limited the availability of this deduction, to keep personal expenses from being converted into deductions simply because they may have some connection to a business activity.

REQUIREMENTS

To deduct the costs of a home office, a room in a home (or a portion of a room) must be used exclusively on a regular basis for one of these purposes:

* As the taxpayer's principal place of business. * Where the taxpayer meets with clients, customers or patients.

"Focal point" test. The requirements of exclusivity and regularity are fairly well defined; meeting these standards is a relatively clear-cut and straightforward process.

The concept of a principal place of business has not been so easily determined, especially for taxpayers who do work at more than one location or do various parts of their job in different places. One standard that has evolved is the "focal point" test. Under this test, a taxpayer's principal place of business is where goods and services are provided to customers or clients or where income is produced.

Soliman. In a recent case (Soliman, 94 T.C. no. 3), the Tax Court moved away from the focal point test for certain taxpayers. The court ruled this standard will not apply if (1) a taxpayer's home office is essential to his business, (2) he spends a substantial amount of time at his office and (3) there is no other available location to perform the business's administrative functions.

Essential activities. The activities the taxpayer (an anesthesiologist) performed at his home office (bookkeeping, billing, preparation, review and continuing education) were distinct from his other work. …

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