A home office can eliminate the ‘commuting’ portion of your trip, adding additional deductible business miles each day. Is it worth it? You bet. An additional 30 mile round trip can add up to over 4000 additional deductible business miles a year worth almost $900 on the Federal return of a taxpayer in the 22% tax bracket.
IRS Revenue Ruling 99-7 says, ” if you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business”.
Normally, the trip from your home to your place of work or first job of the day or first sales visit, etc. is considered commuting according to IRS rules. Commuting miles are not deductible.
So, if you are an independent contractor, or a partner in a partnership or an owner of a corporation and put an administrative office in your home, then when you leave your office in the morning to your first job or presentation or other business event, that trip is no longer a commute but is a deductible business trip. As well as the trip home from your last place of business.
So, what is an administrative office?
The IRS says, ‘Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements;
- “You use it exclusively and regularly for administrative and management activities of your trade or business.
- You have no other fixed location where you conduct substantial administrative or management activities of your trade or business”
That doesn’t mean you can’t have another office, it just means that your office in your home is your principal office for conducting administrative or managerial duties. These might include:
- billing customers, clients or patients
- keeping books and records
- ordering supplies
- setting up appointments
- forwarding orders or writing reports
To make your home office audit-proof, track its use. You can use a simple daytimer to note the times you are in your home office and the tasks you performed. Remember that the office has to used regularly and exclusively for your business.
A sole proprietorship would report the home office deduction on a Form 8829. The deduction calculated flows to the Schedule C of the business owner.
If you are a partner or a shareholder, there are a couple more hoops to jump through to document and claim the deduction, but it is still allowable.
I know many are afraid to take the home office deduction because urban legend says that it makes you more likely to get audited. We have not found that to be true. The home office deduction is one that is clearly described in the tax code. There are a few records for you to keep, like any other deduction but as long as accurate and complete records are kept and are available, you have nothing to fear.
Here are just a few independent contractor positions which we have seen to benefit enormously using this strategy:
- independent real estate agents
- contract insurance estimators
- almost any contractor in the trades
- any business owner that uses their own vehicle for business purposes
- traveling sales people
- Uber and Lyft drivers
Note that employees used to be able to claim mileage as an unreimbursed employee expense on their Schedule A. This deduction is no longer available. You can be reimbursed by your employer for mileage driven for company purposes but there is no longer any way to deduct it. (Mileage is deductible for an owner of a corporation even if you pay yourself wages though it is documented differently than would be done by a sole proprietor. How that is done is beyond the scope of this article.).
If you own rental real estate property, this deduction is also available. It’s especially beneficial if you travel to monitor your property(ies) on a regular basis.
We work with all of our clients that can use this deduction to make sure it is used to the maximum extent. We can help you too.
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