Lots of Americans work from a home office at least part of the time. It’s a convenient way to run a business, in part because it eliminates the morning commute. It can also offer tax advantages if you can claim the home office as a business deduction. It’s often thought that it’s only possible to claim the home office deduction if one works from the home office for all or the majority of one’s working hours. However, this isn’t necessarily the case. Here’s a closer look at the two main ways in which you could claim the home office deduction.
- Principal office: You can claim your space as a principal office under the precedent established by the U.S. Supreme Court in the 1993 case, Commissioner v. Soliman. The ruling in this case established a two-part test by which a home office deduction would be allowed. This test considers the time spent at each place of business and the relative importance of the activities performed there.
- Alternative post-Soliman rules: After the Soliman verdict was handed down, Congress amended the law to allow home office deductions made in cases in which the following applies: “…the term principal place of business includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business.”
This alternative rule enables taxpayers to claim the home office deduction even if they have another place of business where they spend the majority of the work week.
The Royce CPA Firm delivers high-level tax advice to businesses and entrepreneurs throughout the greater Tucson area. Contact us today to tailor a plan that suits your needs.