In our always-connected, always-on business environment, it isn't unusual for
employees to work from home on a regular basis. For the majority of individuals, this
work occurs in the evenings, or on weekends or holidays, when they're not otherwise
expected to be in the office. However, for an increasing number of employees, they're
telecommuting all or almost all of the time. When they do show up in the office, it
is frequently just for group meetings or other gatherings, not to put in a "regular"
day's work sitting in an office, cubicle or other workspace.
It is employees in this latter situation who may be interested in a recent Tax Court
decision involving a telecommuting employee with large home office deductions.
However, before we get to this case, let's quickly review the general requirements
for a deduction.
The rules allowing a home office deduction if you're self-employed generally require
that the space be used regularly and exclusively:
- As a principal place of business,
- As a place to meet or deal with clients and customers in the normal course of
- "In connection with" the business if the space is a separate structure from the
residence (e.g., a barn or detached garage).
When you're an employee (rather than self-employed), you have to meet one of the above
requirements and the employer convenience test. This test is hard to satisfy, unless
your employer doesn't provide you with an appropriate space in which to get your work
done. This was the situation in a recent court case.
The case involved an employee hired to work in New York for an employer in the
marketing and public relations field whose only offices were in California. The plan
was to secure office space in New York, but that never happened and the employee
worked out of her apartment, utilizing about a third of its space as a home office.
The employer listed the employee's apartment as its New York office and the phone
number listed for that office was the employee's landline phone. The employee worked
out of the home office throughout the year and even saw clients there on a regular
basis. Due to the company's tight financial condition, she was never reimbursed for
any of her home office expenses. As a result, she claimed a large home office
Although the IRS disallowed the entire deduction, the court found that the taxpayer
met the "employer convenience test" and sustained a deduction for a third of her rent
and cleaning expenses - equal to the third of her studio apartment used as a home
office. It did this despite the fact that she technically didn't meet the "exclusive
use" part of the test for claiming the deductions because she occasionally did
nonbusiness activities in the home office and had to regularly walk through the space
to get to and from the sleeping quarters.
If you are regularly working from home because your employer doesn't provide you with
appropriate space from which to perform your job and you are not currently claiming a
home office deduction, we should talk. It could be that you're entitled to some
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opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2014