Is Your Home Office the Principal Place of Business?

Since you run your business out of your home, we wanted to alert you to a problem that might cost you the home-office deductions you've taken in the past. If you perform some activities in your home office, and also work outside of your home, you generally can claim home-office deductions only if your home is the principal place of your business, or if you can arrange to regularly meet with clients in your office in the normal course of your business.

If seeing clients doesn't work for you, the question of whether your home is the principal place of your business is crucial. The answer depends on the relative importance of the business activities you perform at each business location, and the time you spend working at home, versus the time you spend working elsewhere.

If you need to meet with clients outside of the home, or provide goods or services at their locations, you may not have a principal place of business in your home, and you won't qualify for home-office deductions. For example, someone who operates a retail establishment in a shopping area, but does all the paperwork at home because the store doesn't have adequate office space won't get the home-office deduction--at least not for 1997 or 1998. Beginning in 1999, however, you can claim deductions for an office in your home where you perform only administrative or management activities for your business if you do not perform substantial administrative activities at another fixed location. On the other hand, a consultant whose work product is turned out at home should be O.K for the home-office deductions in any tax year, even if traveling around to clients to get and deliver work or discuss conclusions is part of the business. Often, however, there's a fine line between deductions and no deductions, and professional assistance can help you to find out where you stand.

Even if it turns out that you don't qualify for home-office deductions, you can nonetheless deduct all of the direct business expenses related to the business use of your home. And there's a possibility that Congress might restore your deduction in many circumstances. We can show you how to maximize your deductions, and how to claim them with the minimum of time and trouble.