HOME OFFICE AND STUDIO DEDUCTIONS:
Many freelance vocalist and musicians require extensive rehearsals, coaching, and practice to maintain their income-producing skills. They often carry on these activities in their home . The Internal Revenue Services has strict limitations concerning the deduction of operating and depreciation expenses allocable to the portion of a home used for business purposes where the use is on an exclusive and regular basis as a principal place of business, as a place for seeing business clients, or as a separate business structure.
In 1997, Congress reacted to a 1993 Supreme Court ruling that had tightened the meaning of “principle place of business.” The new law relaxed the requirements for a deductible home office as of December 31, 1998, so that it would qualify if used for administrative or management activities of any trade or business if there was no other fixed location to perform such duties. In other respects it continued the two basis tests. (1) the importance of activities performed at each place of business and (2) the time spent at each place. Several steps can be taken to protect the home office deductions.
Perform most work activities at home and document them.
Document all business meetings at home.
Move the home office into a separate structure, such as a garage, and do not mix business and personal matters in the same space.
Prove that the employer requires a home office, for example, by a letter, if the taxpayer is an employee, he or she must also show that the home office is being used for the “convenience” of the taxpayer’s employer.
The home office deduction cannot be more than the total gross income from the business use of the home, after deduction of business expenses other than the home expenses. However, any balance remaining can be carried forward to future years. Only household expenses and repairs that benefit the business space are deductible. The cost of painting another room would, for instance, not be deductible, although part of the cost of painting the outside of the house may be deductible. Lawn care and landscaping cost are not deductible. Small businesses can also deduct up to $25,000 of the cost of new qualifying business equipment such as, computers for website hosting and domains.