Ask the tax adviser
By George Saenz • Bankrate.com

March 10, 2000 -- Today, the tax adviser helps someone who works at home and explains the tax deductions available for volunteers.

Home business expenses

Dear Tax Talk:
I work from my home as a medical transcriptionist but am not self-employed. I receive my paycheck complete with deductions from a medical transcription service. In order to work at home I had to invest in office furniture, reference books and supplies as well as a computer/printer, etc.

Since I am not a "sole proprietor" of a business, I am assuming I cannot file Form 8829 because it refers to a requirement to file Schedule C as well. Is there any way I can claim these business expenses as deductions and necessary to my work?

I also have about a quarter of my house set aside as an office. Is there a way I can deduct expenses such as heat, air, gas, maintenance, etc., as I would if I were running a business from my home?

Thanks for your help.
Sandy

Dear Sandy:
Having recently read my surgical report for my broken foot, I appreciate your profession. Medical terminology makes my tax jargon sound elementary.

The transcription service treats you as their employee for tax purposes. By solely referring to the Form 8829, it seems that since you are not self-employed, you do not get to write off business use of your home. This is not the case, however, if you read further in the Form's instructions. As an employee, you are eligible to claim your business expenses on Form 2106, including your allocable portion of the home office if you meet certain tests. This means that in addition to the deductions for office supplies and products, qualifying for the home-office deduction allows you to claim an allocable portion of your utilities, maintenance etc.

The deduction for business use of your home is available to employees who meet the tests for self-employed individuals and also an additional test.

The test for self-employed individuals and employees is:

Your use of the business part of your home must be:

1. Exclusive, meaning that the area you set aside is not used for other than business purposes,
2. Regular,
3. For your trade or business, AND

1. Your principal place of business,
2. A place where you meet or deal with patients, clients or customers in the normal course of your trade or business, or
3. A separate structure (not attached to your home) you use in connection with your trade or business.

The additional tests for employees is:

1. Your business use must be for the convenience of your employer, and
2. You do not rent all or part of your home to your employer and use the rented portion to perform services as an employee.

An office in the home is for the convenience of the employer if the employer does not provide you space at their location. If working at your home is optional, then you do not meet the test for convenience of the employer.

If you can deduct your home office expenses because you meet the prescribed tests, use the worksheet in IRS Publication 587 to figure your deduction. See the Form 2106 instructions to report your deductions.

Deductions for charitable work

Dear Tax Talk:
If I use my free time to do charity work, can I charge my time by the hour and use that as a tax deduction? Thank you.
Longzx7r

Dear Longzx7r:
Not to discourage your volunteer work, but it does not produce a tax deduction. You will have to settle for the satisfaction that comes with community service.

A general concept in tax is that you cannot get a deduction for something that was not declared as income. For example, if you were to work and earn wages, you would be taxed on those wages. If you gave all your wages to charity then for tax purposes, you would have a net effect of zero, ignoring the deduction limitation on charitable contributions.

Expenses associated with volunteer work can be deducted. For example, mileage, uniforms and certain travel expenses would be deductible. For some additional thoughts on what you can deduct see Table 2 and the examples on pages 4 and 5 of Publication 526.

-- Posted March 10, 2000

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