Question

Client performs bookkeeping work for her clients. She performs most of her client work at the client’s office. She has about ten clients and spends about 4 hours per client each week. She also has a dedicated office at her home where she does all of her administrative work. The administrative work she performs is at her home office to include billing, record keeping, and training.

Area of her home used for business – 500 square feet

Total area of home – 5,000 square feet

Annual indirect costs
Gross income from business - $100,000
Deductible mortgage interest - $25,000
Real estate taxes - $1,500
Utilities - $2,500

Cost basis in the house - $350,000

Cost basis in the land - $50,000

Questions:

What she wants to know is whether she can deduct expenses related to her home office? What is the estimated amount of the home office deduction?
What are the requirements to take a home office deduction?
Is there a code section that applies to our fact pattern?

I remember there was a famous Supreme Court case in this regard, please find that and provide a quick summary of the case.

I also recall the IRS issuing guidance on this as well in a Revenue Procedure. Does the IRS provide a publication on this topic?
How do we report this deduction on her Form 1040?

Answer 1

1) She can deduct expenses related to her home office.The estimated amount of the home office deductions are

=500 sq. feet multiply 5000 sq. meters divided by 100=10%

=Total indirect expenses=deductible mortgage interest+real estate taxes+utilities

=25000$+1500$+2500$

=29000$ multiply by 10%

=2900$

2)If you use part of your home for business ,you can deduct your home office expenses for the business. It applies to homeowners and renters and applies to all types of home.

3)Section 280A(c) allows an individual to claim a home office deduction by deducting expenses incurred in operating a home office

4)Soliman,506 U.S. 168(1993),was a famous case in this regard. He was a famous anesthesiologist who spent 30-35 hours per week with patients at different hospitals but none give a place of office.so he used a spare bedroom in his home for office use.The supreme court denied soliman's claim of home office deductions on the basis of test considerations whether it is the he principal place of business,the relative importance of activities and time spent, hereby tive section congress amended the of respective section code that the home should be the only "principal place of business".

5) Yes,Publication of 587 provides guidance on the related topic by IRS.

6)Schedule C provides the information on the square footage of the home and business,and it shall be allowed as deduction.