Fritz: All Fritz/All Fritz.zip/All Fritz/FILES/BUSITION/SBA.LZH/FSBA.EXE/F301.SBE

Text File | 1992-12-01 | 12KB | 337 lines

@Q01

             ┌───────────────────────────────────────────┐
             │ DEDUCTIONS FOR OFFICE-IN-THE-HOME EXPENSES│
             └───────────────────────────────────────────┘

  If you use part of your residence for business purposes, you
  MAY be able to deduct part of your office-in-the-home expen-
  ses, such as part of your rent (if you rent) or depreciation
  of your house (if you own), as well as other occupancy expen-
  ses that would be allowable as business expenses, were it not
  for the home-office deduction limitations.  However, the
  rules are fairly stringent, and the general rule is that your
  office-in-the-home expenses are NOT deductible for tax pur-
  poses, unless you meet a number of quite technical require-
  ments.

  NOTE that this series of questions and answers assumes that
  your home-office use relates to your own business, and does
  not deal with whether, as an employee, your work at home
  qualifies as being for the convenience of your employer.

    QUESTION:  Do you use a portion of your residence
               EXCLUSIVELY for business purposes AND
               on a REGULAR basis?

@YN
01\Q02
02\Q05

@Q02

  So far, so good.  Since you use part of your residence
  EXCLUSIVELY for business and on a REGULAR basis, you may
  be able to claim office-in-the-home deductions if you also
  qualify under one of several other alternative tests.  One
  of these tests is the determination of whether your home
  office is your PRINCIPAL place of business for a particu-
  lar business you carry on.

    QUESTION:  Do you use a portion of your home as your
               PRINCIPAL place of business?

@YN
01\Q09
02\Q03

@Q03

  You're down, but not out.  Even if your home office is not
  your principal place of business, you may still qualify for
  deducting home office expenses if you use your home office to
  meet with customers, clients, or patients on a regular basis.
  (But remember, you still must use your home office EXCLUS-
  IVELY and REGULARLY for business purposes.)

    QUESTION:  Do you use your home office regularly to meet
               with customers, clients, or patients?

@YN
01\Q09
02\Q04

@Q04

  Hmmmm....Not good.

  But there are several other possibilities we haven't consid-
  ered yet.  One important one is where your home office is a
  separate structure that is not attached to your house or
  living quarters.  Under this test, you still must use the
  office exclusively and regularly for business, but it need
  not be your principal office or be used to meet clients,
  customers, or patients.  It simply must be used "in connec-
  tion with" your business.

    QUESTION:  Is your home office in a separate structure,
               not attached to your house or living quarters?

@YN
01\Q09
02\Q05

@Q05

  You may still be able to qualify for a home office deduction
  if you run a retail or wholesale business out of your home,
  and use part of your home on a regular (but NOT necessarily
  exclusive) basis to store INVENTORY.

    QUESTION:  Do you use part of your home on a regular
               basis to store inventory from your retail
               or wholesale business?

@YN
01\Q06
02\Q07

@Q06

  This looks promising, in your case....You MAY qualify for
  the home office deduction for storage of inventory, but only
  if your home is the SOLE fixed location of the business.

    QUESTION:  Is your home the SOLE fixed location of the
               business (the business for which you are using
               your home to store the inventory)?

@YN
01\Q09
02\Q07

@Q07

  Your chances of qualifying for home office deductions don't
  appear to be very good, based on your responses so far....

  However, there is one last, long shot possibility, if you
  regularly use part of your home to provide certain day-care
  services.

    QUESTION:  Do you use part of your home regularly to pro-
               vide day care services for children, persons
               age 65 or older, or persons who are physically
               or mentally incapable of caring for themselves?

@YN
01\Q09
02\Q08

@Q08

  CONCLUSION:

  Unfortunately, it doesn't look like you meet any of the
  tests for claiming expanded home office deductions.  Thus
  you can't write off any of the rent paid for your house or
  apartment (or depreciate your house, if you own it), nor
  can you write off any part of various occupancy expenses,
  such as electricity, gas or other utilities.  However, you
  may deduct the cost of business telephone calls as expenses
  of your business--but no part of the charges (including
  taxes) paid for basic local telephone service for the first
  telephone line in your residence can be deducted.

  But note that, even though you don't meet any of the re-
  quirements for a qualified home office that we have asked
  you about, these rules will NOT disallow your deductions
  that are otherwise allowed for tax purposes, such as inter-
  est on your home mortgage, real estate taxes, or casualty
  losses from damage to your residence.  Also, business expen-
  ses that are not home-related, such as business supplies,
  cost of goods sold, wages paid to business employees, and
  other such operating expenses, are not affected by the lim-
  itations on home office-related deductions.

  Also, look on the bright side.  Since no part of your res-
  idence is considered to be a qualified home office, you
  shouldn't lose your right to defer all the gain on sale of
  your residence if you sell your home at a gain and reinvest
  within the required period in another home.  Nor, if you are
  55 or over, and qualify for the once-in-a-lifetime exclusion
  of up to $125,000 of gain on the sale of a home, will you
  lose any part of this exclusion on account of your having
  used part of your house for business.

@STOP

@Q09

  CONCLUSION:  You've made it through the maze, and may actual-
  ly qualify to deduct some of your home office expenses.

  Now that you can apparently show that a portion of your resi-
  dence qualifies as a home office, you have at least gotten
  over the first hurdle.

  Since the business use of your home qualifies under one of
  the above tests we have put to you, then you MAY be able to
  deduct part of the home office expenses that are allocable
  to the portion of your home that is used in your business
  (in addition to home mortgage interest, property taxes and
  casualty losses).

  For, example, if 15% of your home qualifies as a home office
  or place of business, you could, possibly, deduct up to 15%
  of your occupancy costs, such as gas, electricity, insur-
  ance, repairs, and similar expenses, as well as 15% of your
  rent (if you rent) or depreciation expense on 15% of the
  tax basis of your house (if you are an owner).  The IRS and
  the Tax Court don't agree on the deductibility of certain
  other types of expenses, like lawn care.

  DEDUCTIONS LIMITED TO INCOME.  Note, however, that the
  amount of qualifying home office expense you can actually
  deduct for a year is limited to the gross income from your
  home business, reduced by regular operating expenses (wa-
  ges, supplies, etc.) and an allocable portion (15% in the
  above example) of your mortgage interest, property taxes
  and casualty loss deductions.

  If you still have net business income after taking those
  deductions into account, then you may deduct the allocable
  portion of your home office expenses, up to the amount of
  such net income.

  CAUTIONARY NOTE:  The down side of taking home office deduc-
  tions is a potential tax bite when you sell your home.  For
  example, if 15% of your home has been used for business and
  you sell your home for a gain, you will have to pay tax on
  15% of the gain, even if you reinvest in a new house, or
  even if you qualify for the once-in-a-lifetime $125,000 ex-
  clusion of gain (for persons over age 55) when you sell the
  house.  Thus, a few hundred dollars of home office deduc-
  tions claimed now may result later in thousands of dollars
  of tax on the "business" part of your house when sold for
  a gain a few years down the road.

@STOP

@HELP

@H\01

Hints regarding  the exclusive business
use test:   You should  have  your home
office set  up in a room,  or a portion
of a room (preferably with some kind of
partition)  that only  contains typical
business  furniture,  and not  personal
use items  such as  a dresser,  TV set,
bed, etc.

@H\02

Note that if your business is carried on
in one or more locations, proposed regu-
lations require you to consider the fol-
lowing factors as to principal location:

  . the relative  amount of  business
    income  earned at  each location;

  . the business facilities available
    at each location; and

  . the amount of time spent on busi-
    ness activities at each location.
@H\03

              ┌─────────┐
              │ EXAMPLE │
              └─────────┘

An example  that would  qualify  for the
home office deduction would  be a physi-
cian who has a regular main office down-
town,  but who  also has a  home office,
which  he or  she uses  EXCLUSIVELY  and
REGULARLY  to meet  some patients,  even
though it is not the principal office.

@H\04

              ┌─────────┐
              │ EXAMPLE │
              └─────────┘
A situation  that might  qualify for the
home office deduction would be a partner
in an accounting  firm who does  most of
her work in  the firm's business office,
but who sets up her office in the garage
(UNATTACHED  to the  house) next  to her
home,  where she  works on  evenings and
weekends (provided that the home  office
is used  EXCLUSIVELY  and  REGULARLY for
business).

@H\05

Note that the storage space test is not
for people  who are engaged  in service
businesses, such as doctors, lawyers or
dentists.  Also, space that is used for
storing  things other  than  inventory,
such as books, files or equipment, does
not qualify.

@H\06

Note that  this  requirement  refers to
your sole FIXED location  of your busi-
ness,  and that the storage use must be
regular, but not necessarily exclusive.

@H\07

If you use part of your home on a regu-
lar  (but  not  necessarily  exclusive)
basis as a day-care  facility for chil-
dren,  persons over 65,  or persons who
are physically  unable to  take care of
themselves,  you ought to  qualify  for
treating  that  part of  your home as a
home office  under a  special exception
provided under the tax law.

@H\08

More on  home telephone  expenses (whe-
ther or  not you  have a qualified home
office):   Note that if you choose more
expensive  touch-tone services,  rather
than  rotary  dial service  (on a first
phone  line),   the  entire  touch-tone
charge is NON-deductible.   But certain
other additional expenses, such as call
waiting, call forwarding, or extra dir-
ectory listings, can be deducted if you
show they are  valid business expenses.

@H\09

PLANNING TIP:   Any portion of your home
office expenses that are aren't deducted
due to the income limit in this year can
be carried forward to future years until
usable (if ever).  So if you have quali-
fied home office expenses that you can't
utilize because of the income limit this
year, keep a record of them, and perhaps
you will be able to deduct the  carried-
over expenses next year (or thereafter),
if the business becomes more profitable.

@END