Taxes Made Simple

It seems rather counterintuitive, doesn’t it?  How could having a home office allow you more deductions for your travel?  If anything, it seems as if taxpayers with home offices probably travel less, and have smaller travel-related deductions.  Let’s make some sense of this.

As a business owner, you probably already know that you’re allowed to deduct the cost of transportation to meet with clients as well as many costs related to business trips.  If your office is outside of your home, you probably also know that you are not allowed to deduct the miles for traveling between your home and your office.  The reason that you are not allowed to take this deduction is that the trip between your home and your main place of work is known as “commuting” and commuting costs are always nondeductible.

Now, what if you had two offices—one at home and another away from home?  Does that change anything?  Well, it depends.  If you only work occasionally at your home office, and your other office is still your primary place of work, not much will change really as far as taxes.

On the other hand, if your home office meets certain requirements (explained below), and counts as your primary place of work, suddenly the situation changes.  Now, your nondeductible “commute” is the 30 feet from your kitchen to your home office.  And your trips from your home office to your outside office fall under the description “getting from one workplace to another in the course of your business or profession.”  According to IRS Publication 463, any transportation expenses that meet that description are deductible.

In order to qualify for this tax benefit, your home office must meet the same requirements as it does when attempting to qualify for the Business Use of Home deduction (commonly called the “Home Office Deduction”).  The requirements are as follows:

•    You must use your home office regularly and exclusively as your primary place of business, or

•    You must use your home office regularly and exclusively as a place to meet with clients/customers.

The terms “regularly” and “exclusively” are fairly straightforward; it’s the phrase “primary place of business” that needs a little clarification.  (Be aware, though, that the IRS is quite literal in its interpretation of what constitutes exclusive use.)  In determining which of your places of work counts as the primary one, the following factors are considered:

•    The amount of time spent at each place where you conduct your business, and

•    The relative importance of the activities performed at each place.

If, based on the two above factors, you don’t think your home office will qualify as your primary place of business, you can still qualify if it meets both of the following requirements:

•    You use it regularly and exclusively for administrative or managerial activities for your business, and

•    You have no other permanent location where you conduct substantial administrative or managerial activities for your business.

This alternative method of qualifying is particularly useful for business owners who tend to do most of their work on their clients’ premises (contractors, for instance).  Also, outsourcing any of your administrative activities does not disqualify you from meeting these requirements.

So, if you needed another reason to make sure your home office qualifies for the Business Use of Home deduction, there it is.  You can deduct more for travel by working from home.

For More Information, Take a Look at My Related Book.

See it on Amazon now.

A testimonial from a reader on Amazon:

"Quick and easy read. No fluff, just straight to the point and gives you more helpful information that you might imagine. If you are looking to get the bottom line information you need to start your business right then this book is a must have." R.L. Muhammad

Read more reviews on Amazon.