Is Your Administrative Home Office a Principal Office?

The home-office deduction is becoming more and more popular, and I thought you would like some insights.

4 Ways to Qualify for the Home-Office Deduction

The tax code gives you only four ways to qualify for the home-office deduction:

1. Cash register. Principal place of business (the office from which you make the cash register ring). This method of qualifying is generally referred to as the Soliman rule.
2. Administration. Principal place of business (a place of business used by you for the administrative or management activities of any trade or business of yours, if there is no other fixed location where you conduct substantial administrative or management activities of such trade or business).
3. Physical meet and greet. A non-principal place of business (a place of business used by patients, clients, or customers in meeting or dealing with you in the normal course of your trade or business).
4. Detached structure. A non-principal place of business (a separate structure that is not attached to the dwelling unit but is used in connection with the taxpayer’s trade or business).

You achieve the best tax results when your home office qualifies as a principal office under the rules above, because the principal office allows you to deduct commuting mileage from your home to your outside office.

Simplified Option

For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simplified option for computing the home office deduction (IRS Revenue Procedure 2013-13, January 15, 2013). The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners.

This new simplified option can significantly reduce the burden of recordkeeping by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.

If you think you can qualify for the home-office deduction, let’s discuss the possibilities and the records you need to support the deduction.