New Tax Breaks for Telecommuters

The Internal Revenue Service’s new home-based business guidelines will affect over 12 million Americans (one out of every eleven workers) who work from their homes either full time or part time. Home businesses using the Internet and high-tech equipment are “leading the revolution that is reshaping the economy,” says Rudy Lewis, president of the National Association of Home Based Businesses.

Leading the changes in the IRS guidelines for treating part of the home as business space are “Section 179” deductions for furniture, computers, and other business equipment. Home-based business owners can now write off up to $19,000 worth of qualifying equipment on their 1999 tax forms. The limit increases to $20,000 for tax year 2000. Computers, video-recording, photographic, and similar electronic devices which are possible to use for entertainment or recreation must be used more than 50 percent for business purposes to be eligible for the deduction.

Most home-based business owners use only a fraction of their homes for business purposes. Household expenses may be written off against business income for that fraction if it is eligible. If, for example, your home work space is one-sixth of the total area of your house, and if one-sixth of the cost of maintaining and running your house (plus depreciation) comes to $10,000 for the year, your taxable net income will be $10,000 less because of the deductions. The main rules for determining whether this home office or work space qualifies for the tax benefits are:

• The home office must be used “exclusively” and “regularly” for business (including product or inventory storage);
• The home office must be either: your principal place of business; a location for meeting with clients or customers; or a separate structure used for business, not attached to your home.

A home work space may now be defined as your “principal place of business” if it:

• Is the only fixed location where you conduct substantial management or administrative activities for the business;
• Is used for management or administrative activities regularly and exclusively.

For rules specific to the nature of your home-based business, consult IRS Publication 587 (online at www.irs.gov), and seek professional tax counsel if you have any questions.
Based on a report from The Washington Post