There are some dedicated employees that work in an office and also infrequently bring work home (hereinafter referred to as “Non-telecommuting workers”). Non-telecommuting workers often ask us whether they can deduct expenses for the office they’ve set up in their homes. This type of worker is an employee who routinely goes to work at their employer’s offices, and they also bring some work home. They bring work home after the office closes, work after-office-hours, or during the weekend. Regrettably, the rules are very strict and usually this type of worker cannot deduct expenses for the home office.
To be able to claim a home office deduction as a Non-telecommuting worker, the office must be for the employer’s convenience. The requirement for the employer’s convenience is fulfilled when:
• The home office is a condition of employment;
• The home office is essential for the employer’s business to function; or
• The home office is essential for the worker to carry out their duties as a worker suitably.
When a worker sets up an office for their personal convenience, they will not fulfil these requirements. Working overtime at home is not for the employer’s convenience. There is an exception to working overtime that permits a deduction; when the employer’s offices are not available and the employer doesn’t supply an office to work in.
When a worker satisfies the convenience test, because their employer makes it a condition of employment or because the employer’s office is not satisfactory, there are other requirements a taxpayer needs to satisfy in order to be entitled to the take the deduction. To take the deduction an employee must meet one of the following three tests:
Structures test. The cost is deductible when the structure is not attached to the employee’s home, when the structure is used solely and regularly for the employee’s duties.
Location is the place for meeting clients, customers or patients. The home office is used regularly to meet with clients, customers or patients. The clients, customers or patients must visit the home office. Making telephone calls to clients, customers or patients does not satisfy this requirement.
Principal location test. Employees can take the home office deduction when the home is used exclusively and regularly, as the principal location of business. To satisfy this requirement the principal location of business is where the employee spends more than half of their time. Administrative and/or management duties done in the home qualify the home for the “principal location test”; if there is no other fixed employer site and the administrative and/or management processes are for the employer’s convenience.
There are three sets of separate tests that require satisfaction for a Non-telecommuting worker to fulfil in order to take the home office. First the Non-telecommuting worker has to pass the employer’s convenience test. The second test set is that the home office must satisfy one of the following;
A. Structures test.
B. Location is the place for meeting clients, customers or patients.
C. Principal location of business test.
After passing those requirements there is one more test. The area must be used exclusively and regularly for work as an employee. For example, the employee works in a spare bedroom with a desk, home computer, and a treadmill inside of it. The employee also uses the treadmill to exercise; this is personal use of the home office and fails the exclusive use requirement.
Regularly means the area is used by the worker on a consistent basis. Generally, this is every week. Sporadic or infrequent does not qualify.
Qualifying for the home office deductions as a Non-telecommuting worker is a complicated issue. This is due to the fact that the IRS has litigated the issue many times and the law has changed and become intricate.
We hope this article was helpful. This article is an example for purposes of illustration only and is intended as a general resource, not a recommendation.