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Taxes & Accounting

2002-02-01 15:35:00

Home office deductions

:  My wife is a commissioned salesperson who will be going on maternity leave in March. If we install a desk system, a modem link to her company's computer, call forward her work phone line to the house, and add a fax-she can work out of our home on a limited basis and not lose clients. This home office equipment is not just a convenience, but is essential to competing in the world of sales with a babe in arms. Without trying to write off the space in our home, can we deduct these expenses from our taxes?

Larry Sell Question:  My wife is a commissioned salesperson who will be going on maternity leave in March. If we install a desk system, a modem link to her company's computer, call forward her work phone line to the house, and add a fax-she can work out of our home on a limited basis and not lose clients. This home office equipment is not just a convenience, but is essential to competing in the world of sales with a babe in arms. Without trying to write off the space in our home, can we deduct these expenses from our taxes?Answer:  Generally, the use of a home computer by an employee is not deductible unless it can be shown that the computer is both for the convenience of the employer and is a condition of employment. In the fact pattern above, it appears that although the employer may allow the employee to work out of the home, it is the personal decision of the employee, not the employer that will limit the employee's ability to work at the convenience of the employer. These limitations apply to assets that are defined as listed property and would include the computer, computer peripherals, and communication equipment.  An exception to these listed property rules exists if the home office rules are satisfied. In other words, the question asks if the expenses can be written off without trying to write off the space in the home.  The answer is, the computer deduction may be easier to sustain if home office deductions were allowed.  Home office rules require that the home office be for the convenience of the employer and must be a specific area of the dwelling unit that is 1)used regularly and exclusively as the taxpayer's principal place of business or 2)is a place where clients regularly meet with the taxpayer in the normal course of business.      I would strongly recommend reading 'IRS Publication 587 Business Use of Your Home', for more detailed information.       Another factor affecting employee expenses is the 2% of Adjusted Gross Income (AGI) limitation.  Non-reimbursed employee business expenses are treated as miscellaneous itemized deductions.  The total of these miscellaneous itemized deductions are allowed to reduce taxable income only to the extent they exceed 2% of Adjusted Gross Income.        For example, if the AGI reflected on the return is $100,000, the first $2,000 of miscellaneous itemized deductions do not reduce taxable income. I discussed automobile expenses, deductible travel expenses, and entertainment expenses in the January, 2002, The Q and A Times, in response to a related question.     I recommend you review 'IRS Publication 463, Travel, Entertainment, Gift and Car expenses' for more detailed information.       The deductibility of home office expenses, business expenses and employee business expenses, both reimbursed and non-reimbursed, are areas of the tax law that are applied to specific facts and circumstances and the rules in these areas are complex.  I have mentioned two of the available publications that address these topics more thoroughly.  I also recommend you consult with a qualified individual to advise you based on your unique set of facts and circumstances.