The Tax Blotter is a round-up of recent tax-related news briefs.
As the ranks of the gig economy continue to swell, more taxpayers are able to claim home office deductions.
There’s no place like home. Generally, to qualify for deductions for home office expenses, you must use the home regularly and exclusively as your principal place of business or a place where you meet or deal with customers, clients or patients in the normal course of trade or business. But many self-employed individuals, including those in the gig economy, do not have a single primary place of work. In a landmark case (Soliman, 506 U.S. 168, 1993), the U.S. Supreme Court approved home deductions for self-employed individuals who work at numerous locations—like landscapers and interior design decorators—and do their administrative work at home.
Carve out office space. Suppose you run a self-employed business out of your finished basement where you have a desk, computer, file cabinets and other essentials. The problem: You also let your kids play in the basement with their toys and watch TV there, so the “office” isn’t used exclusively for business. Possible solution: Cordon off an area to be that is strictly limited to business purposes. Although physical barriers aren’t necessarily required, such a division between a business area and a personal area strengthens your position for claiming deductions (Weightman, TC Memo 1982-674, 11/22/82).
Watch out for trap door. Normally, you can deduct a portion of your household expenses attributable to your home office based on business use. This includes a portion of your utilities, insurance, repairs, home security expenses, etc., plus a generous depreciation allowance. However, if you sell the home, you must recapture any previously allowable depreciation at a 25% tax rate. One alternative: The IRS permits you to claim a simplified deduction of $5 per square foot of the home office, up to an annual maximum of $1.500. There is no recapture of depreciation with the simplified method.
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Tags: Income Taxes, IRS, Taxes
