document.write('<p><b><font class="heading">The Home Office Deduction</font><br><font class="text"><i>The tax break has been expanded, b');
document.write('ut make sure you know the rules.</i></b></p><font class="text"><p>The Taxpayer Relief Act of 1997 included a modificat');
document.write('ion of the IRS\'s definition of &quot;principal place of business&quot; that will permit a larger number of taxpayers to ');
document.write('qualify for the home-office deduction. For tax years beginning after 1998, the deduction will be available for home offi');
document.write('ces that are used for administrative or management activities related to the taxpayer\'s business (for example, billing, ');
document.write('maintaining records, ordering supplies, scheduling appointments, creating reports).</p><p><b>Business/Personal Boundar');
document.write('ies<br></b>Home-based businesses, by their very nature, often have less structure. While many consider this to be an adv');
document.write('antage, working at home can be a double-edged sword. The lack of structure tends to result in home-based workers putting');
document.write(' in more hours than when they did not work at home. Having set office hours and &quot;closing up&quot; at the end of the');
document.write(' day will help you balance business and personal matters.</p><p>Under the amended rules, a taxpayer is allowed to dedu');
document.write('ct expenses of a home office that is used for business purposes only if the space is used &quot;exclusively&quot; on a &');
document.write('quot;regular basis&quot; as:</p><p>The principal place of business carried on by the taxpayer,</p><ol><li><p>A place');
document.write(' for meeting with clients or customers in the ordinary course of business, or</p></li><li>A place for the taxpayer to ');
document.write('perform administrative or management activities associated with the business, provided there is no other fixed location ');
document.write('from which the taxpayer conducts a substantial amount of such administrative or management activities.</li></ol><p>&nb');
document.write('sp;<br><b>The Taxpayer Relief Act of 1997 added this third provision to the definition of principal place of business.</');
document.write('b></p><p>The exclusive-use test will be satisfied if a specific portion of the taxpayer\'s home is used solely for busi');
document.write('ness purposes or inventory storage. The regular-basis test is satisfied if the space is used on a continuing basis for b');
document.write('usiness purposes (that is, incidental business use will not qualify.)</p><p>In determining the principal place of busi');
document.write('ness (first provision under the definition of principal place of business, above), the IRS considers two factors: Does t');
document.write('he taxpayer spend more business-related time in the home office than anywhere else? Are the most significant revenue-gen');
document.write('erating activities performed in the home office? Both of these factors must be considered when determining the principal');
document.write(' place of business.</p><p><b>Employees<br></b>To qualify for the home-office deduction, an employee must satisfy two a');
document.write('dditional criteria. First, the use of the home office must be for the convenience of the employer (for example, the empl');
document.write('oyer does not provide a space for the employee to do his/her job). Second, the taxpayer does not rent all or part of the');
document.write(' home to the employer. Employees who telecommute may be able to satisfy the requirements for the home-office deduction.<');
document.write('/p><p><b>Expenses<br></b>Home office expenses are classified into three categories:</p><p><b>Direct Business Expense');
document.write('s</b> relate only to the taxpayer\'s business activity (for example, supplies, salaries). Expenditures for additional pho');
document.write('ne lines, long-distance calls, and optional phone services for the business may be deductible as direct business expense');
document.write('s. However, basic local telephone service charges (that is, monthly access charges) for the first phone line in the resi');
document.write('dence generally do not qualify for the deduction.</p><p><b>Permissible Expenses</b> are expenditures that could be inc');
document.write('luded as itemized deductions in the individual\'s tax return (for example, mortgage interest, real estate taxes, and casu');
document.write('alty losses).</p><p><b>Previously Non-deductible Expenses</b> would not be deductible if not for the home office deduc');
document.write('tion (for example, insurance, utilities, and depreciation).</p><p><b>Limitation<br></b>Home office deductions are limi');
document.write('ted to the gross income from the business activity. Previously non-deductible expenses cannot create or increase a net l');
document.write('oss from a business activity. However, a carryover to future years is available for unused, allowable home-office expens');
document.write('es.</p><p><b>Sale of Residence<br></b>Tax rules generally permit a $500,000 (married filing jointly) or $250,000 (sing');
document.write('le or married filing separately) exclusion on the gain from the sale of a primary residence. If part of the home is used');
document.write(' for business purposes, the gain is divided into two parts -- personal-use portion (the exclusion applies) and business-');
document.write('use portion (exclusion does not apply). For example, a taxpayer who qualifies for the exclusion, but has used 25 percent');
document.write(' of the home for business purposes during the during past five years, will only be able to apply the exclusion against 7');
document.write('5 percent of any gain recognized on the sale of the home.</p><p>As with many tax laws there are exceptions to this rule. If you\'d like a clearer picture of the size of the exclusion you qualify for, please call us.</p><p><b>Taxes<br></b>The &quot;office-in-home&quot; tax ded');
document.write('uction is valuable because it converts a portion of otherwise nondeductible expenses (for example, utilities and homeown');
document.write('ers insurance) into a deduction. The treatment of home offices for income tax purposes is one of the more controversial ');
document.write('provisions in the tax law.</p><p>An individual is not entitled to deduct any expenses of using his/her home for busine');
document.write('ss purposes unless the space is used exclusively on a regular basis as the &quot;principal place of business.&quot; The ');
document.write('IRS applies a 2-part test to determine if the home office is the principal place of business.</p><p>Do you spend more ');
document.write('business-related time in your home office than anywhere else?</p><p>Are the most significant revenue-generating activi');
document.write('ties performed in your home office?</p><p>If the answer to either of these questions is no, the home office will not b');
document.write('e considered the principal place of business, and the deduction will not be available.</p><p>Business use of the home ');
document.write('by an employee must also be for the convenience of the employer. These rules make it very difficult for an employee to q');
document.write('ualify for the deduction.</p><p>If these three tests are met, the deduction is limited to the gross income from the bu');
document.write('siness activity. Furthermore, a deduction for home-office expenses cannot create or increase a net loss from the busines');
document.write('s. Any disallowed deduction may be carried over to future years.</p><p>Taxpayers taking a deduction for business use o');
document.write('f their home must complete Form 8829. Some tax experts believe that taking a deduction for home-office expenses, whether');
document.write(' clearly allowable or not, increases the likelihood of an IRS audit.</p><p>These are some thoughts to consider.</p><');
document.write('p>If you have a home office or are considering one, please call us. We\'ll be happy help you take advantage of these dedu');
document.write('ctions.</p>');