Segal, Cohen & Landis Reviews New IRS Safe Harbor Rules

A recent article in Forbes, entitled “Does the IRS New Safe Harbor Rules Help or Hurt Remote Workers?”, discusses the IRS weighing in on a popular topic of the moment: telecommuting. Yahoo’s CEO Marissa Mayer’s decision to bring telecommuters back into the office every day sparked discussion in several spheres. The article notes that regardless of which side of the debate you land on, there is one thing most people believe is a benefit of working at home—pleasant tax deductions.

While this is the common thought, this is not always correct. Unfortunately, the terminology used when referring to this arrangement, such as “working from home,” doesn’t always paint an accurate picture. The terms are ambiguous, and do not readily note the different circumstances.

For example, “working from home” could mean an individual is a solo entrepreneur trying to start up a business, or it could mean that he or she is a parent working for a large corporation. The IRS takes this distinction very seriously. The article notes that with the way the Home Office Deduction is set up, it seems like they side with Mayer in her approach to telecommuting.

The IRS looks at telecommuters and self-employed taxpayers very differently. The new Safe Harbor exception is one such instance in which the difference is obvious.

Before this year, the tax laws were seemingly inhospitable to the increasingly-prevalent telecommuting that was going on. Unsurprisingly, the original form for deduction was complex, with 43 lines and 4 pages of text.

The new Safe Harbor method allows workers to deduct $5 per square foot of home office space, with a maximum of 300 square feet. The IRS has stated that it expects the new method to save small business owners more than 1 million hours each year in recordkeeping and paperwork time.

The new rules are not the same for telecommuters though. The new rules state that if taxpayers are compensated for their home office set up, they are not eligible for a deduction.

Also, the rules make it clear that the convenience must be on the side of the company, not the taxpayer, in regards to telecommuting. This is not advantageous for individuals who must telecommute for personal reasons, such as parents who must watch over children.

While not explicitly working against telecommuters over small business owners, there are aspects to the new Safe Harbor method that could put telecommuters in a challenging spot.

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