Home-Office Deductions Take Effect - Brief Article

Nation's Business, Feb, 1999 by Peter Weaver

Under a new tax-law provision that went into effect with the new year, taxpayers can deduct expenses for a home office even if they conduct a substantial amount of their business elsewhere.

Congress inserted this tax break for home offices in the Taxpayer Relief Act of 1997, which became law Aug. 5 of that year. The provisions on home-office costs did not take effect until the 1999 tax year.

"It's going to be much easier for small businesses to qualify for home-office deductions," says Susan Jacksack, senior small-business analyst for CCH Inc., a Riverwoods, Ill.-based company that produces print and electronic-information products for the tax, legal, securities, human-resources, and small-business markets.

"The new law is intended for people who use their homes as an administrative and managerial base but perform work at other locations," Jacksack says. Examples of such business owners, she says, include franchisees, accountants, plumbers, painters, general contractors, health-care professionals, and software designers.

To maximize your tax benefits, "you should discuss your home-office setup and work patterns with your accountant early and often," says David Lifson, chairman of the Tax Division of the American Institute of Certified Public Accountants in New York City.

According to Lifson, managing partner for Hays & Co., an accounting firm in New York City, the new tax rules are so complex that the details of your business should be analyzed by an accountant regularly "It's an area where you could easily overdeduct something that you're not entitled to and get into trouble," he says. "And it's also easy to miss an important deduction that you are entitled to."

You should review all the possible items you can claim as deductions. Costs such as those for business phone lines, equipment, furniture, and painting and decorating are typically deductible. Portions of your mortgage or rent, utility costs, and condominium fees are usually deductible as major home-business expenses. Consult your accountant on any deduction claimed for travel involving business; some such costs are not deductible. "It's tricky," Lifson says.

Homeowners can take a depreciation deduction for the square footage dedicated to office space. But if the home is later sold at a profit, Lifson says, the accumulated depreciation deductions can be taxed as income. Even so, the deduction is a good deal, tax experts say, because you get to make use of the money you save until the house is sold.

More information on the new law is available at CCH's World Wide Web site, at www.toolkit.cch.com.