Michigan State University Extension
Home-Based Business - 09159415
10/01/98
House of Representatives Bill 2444 (H.R. 2444) proposes to restore the full home-office deduction to thousands of Americans who work for themselves from a home office but perform their services out in the field.
The Supreme Court ruled in a case last year that the home-office deduction would not be available to business people who handled their trade away from their home offices, even if those offices were used exclusively for business. Despite the IRS's argument that the court's ruling in the case only verified existing policy, the agency has clearly taken the decision as a sign to tighten up the rules.
New directions included with 1993 tax forms note that home offices are deductible only if they are used regularly, exclusively and principally for business. To determine if a home office is a principal office, a taxpayer must weigh various business activities.
According to the IRS directions, if the nature of the business requires that you meet clients or patients, or requires that you deliver goods or services to a customer, the place where that contact occurs must be given greater weight in determining where the most important activities are performed. Performance of necessary or essential activities in the home office, such as planning for services, the delivery of goods, or the accounting or billing for those activities or goods, is not controlling.
To many observers, the Supreme Court ruling and the IRS response seemed like an overreaction that denied many business people their legitimate business deduction. Representative Peter Hoagland drafted H.R. 3407 so that people who administer or manage their businesses from a home could qualify for the home-office deduction.
The bill is not a radical departure from existing law; it maintains the regular and exclusive tests and merely expands the principal test to include essential administrative and management activities. H.R. 3407 would allow deductions for exclusive home offices if they are necessary because the taxpayer has no other location for the performance of the administrative or management activities of the business.
Without the bill, people who perform their jobs away from their home offices will have a difficult time taking their deductions.
For more information on H.R. 2444, call David Levy, sponsor, at (202)225-5516.
Source: Linda Stern, Reclaim Your Lost Deduction, Home Office Computing, April 1994. Levy, David. "Redefine the Home-Office Tax Deduction," Home Office Computing, October 1994.