Are you a self-employed individual who conducts most of your business at various locations? Even though you spend much of your work time away from home, you still may be able to qualify for home office deductions. Following a landmark Supreme Court case (Soliman, 506 U.S. 168, 1/12/93), the tax law test was revised to make it easier for certain self-employed taxpayers.
Background: As a general rule, you may claim home office deductions if you regularly and exclusively use the home office as your principal place of business or a place where you meet or deal with customers, clients or patients in the normal course of business. If you are a self-employed individual with a “stay-at-home” business, that is usually not a problem. But suppose you have the kind of job—such as a lawn care service or a roofer—where you typically perform most of your actual work duties at other locations? That situation is not as clear-cut.
In the Supreme Court case, Dr. Soliman, an anesthesiologist, worked at three different hospitals for close to 35 hours a week. He did not have an office at any one of the hospitals. Instead, he maintained an office in his condominium, spending two to three hours a day on administrative matters, contacting patients, surgeons and hospitals by telephone; maintaining billing records and patient logs; preparing for treatments and presentations; and so on. But Soliman did not meet with any patients at his home office.
The Supreme Court developed a test to determine the “principal place of business” for taxpayers like Soliman. Although no single factor would determine the outcome, the place where the goods and services of the businesses were delivered became a point of emphasis.
But the Soliman case did not stand for very long. The Taxpayer Relief Act of 1997 (TRA ’97) established two key requirements for meeting the “principal place of business” test in this situation. Under TRA ’97 and continuing today, you may qualify for home office deductions if the following two conditions are met:
- You use the home office to conduct administrative or management activities of your business.
- The business has no other fixed location where you conduct substantial administrative or management activities.
As before TRA ’97, you must use the home office regularly and exclusively for your business operation. In addition, if you are an employee of a company, the use must be for the “convenience” of the employer. Employees are advised to have this requirement written into their employment contracts.
Bottom line: The tax law now recognizes the performance of administrative and management duties as a key component of the “principal place of business” test. This is particularly important to self-employed taxpayers who work at numerous business locations and maintain a home office to handle the bookkeeping. For questions regarding your specific situation, please contact a Lohman Company professional for assistance.