Over the years, we’ve come across many small-business owners and tax advisors who believe that a home office is not deductible unless it’s the only place of business. The IRS says “you can have more than one business location, including your home for a single trade or business.”
Translation. Having a second office location doesn’t rule out the home-office deduction.
Question. When is the home-office deduction allowed when you have more than one business location?
Two Reasons
When possible, you want to claim that your office in your home qualifies as a principal place of business because this classification
• gives you the home-office deduction, and
• eliminates commuting from your home to your regular office.
Current Law
Current law gives you two ways to claim your office in the home as a principal office:
First, as a principal office under the rules that the Supreme Court finalized in Soliman
Second, as a principal office under the alternative after-Soliman rules, wherein lawmakers added this alternative: “… 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”
The IRS gives you the following examples of administrative or management activities:
• Billing customers, clients, or patients
• Keeping books and records
• Ordering supplies
• Setting up appointments
• Forwarding orders
• Writing reports
Takeaway
Question for you: If you have an office downtown where you spend 40 hours a week, can you claim that you have an office in your home that qualifies as a principal office if you spend only 12 hours a week working in the home office? If you said no, you are not alone. But you would also be wrong.
With the administrative or management rule, you can have your principal office in your home with 12 hours of work a week, even when you work at your other office for 40 hours.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not know the requirements to qualify for the home office deduction. Whether you own your home or rent, you should have a home office to help reduce your taxes. And regardless of how you operate your business (say, as a proprietorship, LLC, or corporation), the home-office deduction can save you thousands in taxes.
If you or someone you know is self-employed or a small business owner, please feel free to contact me by scheduling a call, or by emailing at [email protected].
Tatsiana B. Bender
Bender CPA, PLLC
Fort Worth, TX 76107
[email protected]
Phone: (817) 313-4352
Bender-CPA.com
