Masonry Magazine August 1988 Page. 16
Tax Matters
First of all, you have to determine whether or not your occupation is indeed a "trade or business" from the IRS' viewpoint. Investing only for your own account-for example, if you play the market is not considered a trade or business. But your job as an employee is, in fact, your trade and business.
To get a deduction as an employee, your home office must be for the convenience of your employer. Generally, the courts allow the deduction if the office is required by the employer. However, if the employer provides office facilities, your home office deduction is in jeopardy, unless the facilities are not suitable.
No deduction is allowed unless the office is used on a "regular and exclusive" basis. "Regular" means repeated, consistent and not occasional. And, "exclusive" refers to a specific part or room of the home being used or dedicated solely to your office.
Okay, you have jumped the first set of hurdles-you use your home office on a regular and exclusive basis in the operation of your trade or business. Now, your home office must fall into one of these three categories:
1. It must be your principal place of business. If you are self-employed, no problem. If you are an employee, you must show that your employer provides no facilities or that they are unsuitable.
2. It is a place where you meet and deal with your clients, patients or customers in the normal course of business.
3. It is a separate structure used in your trade or business.
Now that you have survived the minefield of qualifications and conditions, how much can you deduct? To make it simple, divide all possible deductions into four groups:
Group 1. Expenses that relate to your business, not your home; such as postage, office supplies, wages, etc.
Group 2. Expenses that are deductible in any case: mortgage interest and taxes.
Group 3. Expenses that relate to the office itself: utilities, telephone, repairs, etc.
Group 4. Depreciation on your home.
Remember, you can only deduct a proportionate part of the Group 2, 3 and 4 items. For example, if your office is 15 percent of the house, deduct 15 percent of these items. Of course, the remaining 85 percent of Group 2 items can be taken as itemized deductions.
Let's "crunch the numbers." You must do it in this order: (1) Start with your gross receipts from your business activity and (2) subtract the total of (a) all of Group 1 plus (b) the business-percentage portion of Group 2. The "balance," if a profit, limits the amount of additional deductions you can take; if a loss, none of Group 3 or Group 4 can be deducted. Finally, subtract Group 3 and Group 4 amounts in that order. If a profit still remains, you have succeeded in deducting 100 percent of all four groups. Sorry, but as soon as the "balance" is reduced to zero, no further deductions are allowed. Put another way, losses caused by pure home office expenses (Group 3 and Group 4) are a no-no.
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