How Home Office Deductions Can Trigger Underpayment Penalties

As technology continues to improve at a rapid pace, more and more people are opting to telecommute to their jobs. Working from home can save the employee the time and expense of traveling to and from a job site. It also benefits the employer by reducing office costs and, in some cases, improving productivity. Unfortunately, however, some taxpayers who telecommute find themselves facing IRS underpayment penalties.

3 Types of Tax Problems Some Telecommuters May Face

All taxpayers are required to make certain minimum payments to the IRS. When a taxpayer underpays, a penalty may occur. Telecommuting is becoming more popular as technology improves. However, the potential for tax problems relating to telecommuting continues. The following are three examples of how a telecommuter can end up with a tax problem:

  1. Taking too large of a deduction for business use of a residence. Taxpayers can use an actual-expense method or a safe harbor method to calculate their deduction. If it is too large, they may face an IRS tax issue.
  2. Claiming certain deductions relating to working from home when their employer did not require them to do so. If the taxpayer is working from home for his or her own convenience, and not for the employer’s convenience, the taxpayer cannot take these deductions.
  3. Failing to keep adequate expense records. When a person who works from home qualifies to take a home office deduction, it is crucial to keep accurate records. This includes photos of the work area that can be shown to the IRS to support the statement that the area is used only for business and not in combination with personal use. Failing to keep sufficient records can result in being hit with penalties and a denial of the deduction by the IRS.

Many people who work from home are also self-employed. Unfortunately, those who are self-employed potentially face tax problems. We are here to help you find resolution to these IRS issues. Learn more about the experiences of our past clients by checking out our client testimonials today.

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