The Home Office Deduction
I get many questions from self employed individuals especially small business professionals. The question that keeps recurring is; “Can I take advantage of the home office deduction even though I perform my professional skill outside my home?”
Well, it depends on the facts and circumstances of your situation. Generally, to claim a business deduction for your home, you must use part of your home exclusively and regularly as your principal place of business; or as a place to meet or deal with patients, clients, or customers in the normal course of your business.
Since a landmark case decided by the U.S.Tax Court in the Soliman v Commissioner of the IRS the availability of the home office deduction has increased to many self-employed taxpayers, including physicians. Nader Soliman, MD, was a self-employed anesthesiologist at three different hospitals. He performed all of the medical services at the hospitals, but none of them provided him with an office. Instead, he used one room in his condominium exclusively to conduct business.
From that room Soliman would contact surgeons and patients by phone, contact hospitals to arrange admissions for his patients, maintain detailed billing and patient logs, transmit information to a billing service, record collections on patients’ logs, and prepare for upcoming cases. These activities typically accounted for 2 or 3 hours per day (10 to 15 hours per week) on average, so Dr. Soliman claimed a home office deduction.
The IRS disallowed the home office expense deduction, contending that his home was not his principal place of business. But on appeal, the Tax Court ruled that the principal place of business is not always where goods and services are transferred, but is often the administrative headquarters of a business. The Tax Court ruled in favor of Soliman and discarded the application of the focal point criteria.
In reaching the decision, the Tax Court considered several factors, including the fact that no other office space was available for use, the activities Soliman conducted in his home office were essential for him to conduct business, and that he spent a substantial amount of time working from his home.
This treatment may also apply to the trade professional (carpenter, plumber, etc) who does not have an office outside his/her home.
Because you are self-employed, you would use form 8829, “Expenses for business use of your home,” to calculate your home office deduction. You would also report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss from Business.
If you have any questions about the home office deduction or would like to discuss further please contact me.
Stephano Slack LLC
125 Strafford Avenue
Wayne, PA 19087