Facts: Our client performs bookkeeping work for her clients. She performs most of her client work at the clients 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.

Additional Facts: 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 Issue and Conclusion:

What is the estimated amount of the home office deduction? There are two ways to deduct home office expenses: 1. Simplified option: $5 per square foot (for a maximum of 300 sq ft) = $1,500 2. Regular method: deductions are based on a % of the area used by the home office, in this case, she could deduct approximately 10% of her home expenses (= 500 / 5,000) if she had qualified for the deduction.

What are the requirements to take a home office deduction? There are two basic requirements for claiming a home office deduction: 1. Regular and exclusive use: this might qualify because her home office would be used only as an office and not as an additional room. This requirement is OK. 2. Principal place of your business: she fails with this requirement since most of her work is done at her client's office. Since most of her work is done outside her home office, she cannot deduct expenses for it.

Is there a code section that applies to our fact pattern? Deductions are allowed for Home office expenses pursuant to Section 280A (c) of the Internal Revenue Code. But for more detailed information, IRS Publication 587 will be more useful.

I remember there was a famous Supreme Court case in this regard, please find that and provide a quick summary of the case. The landmark case that is quite similar to the given facts is the case of Commissioner vs Soliman.

I also recall the IRS issuing guidance on this as well in a Revenue Procedure. Does the IRS provide a publication on this topic? Yes. You may refer to IRS Publication 587 regarding the Business use of your home. It also provides similar examples on how to calculate the business use portion.

How do we report this deduction on her Form 1040? Schedule C provides the information on the square footage of the home and business, and it shall be allowed as a deduction.

Question:

Give me your Analysis of this client's case by comparing the case of Commissioner vs Soliman.