Tax Court's new test for home offices expands availability of the deduction

Article Abstract:

A recent Tax Court decision has altered the method of determining the principal place of business for taxpayers in relation to claims of home office expense deductions. By abandoning the focal test. The Court has expanded the number of taxpayers who may claim home office deductions. Home expenses are deductible only if taxpayers use offices exclusively for business on a regular basis as either a principal place of business or as a meeting place for dealing with clients. The focal test will no longer be used if: a home office is essential to a taxpayer's business; a taxpayer makes substantial use of a home office; and there is no other location to preform business. It is important to be aware that: there is no relaxation of threshold requirements; there is no change in the requirement that an employee's use of a home office be for an employer's convenience; and the portion of the home used for an office must be used exclusively as an office on a regular basis.

Taxation, Cases, Home offices, Tax courts

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Limited options available to correct long-term contract accounting method

Article Abstract:

Contractors in the construction industry are bound by complex accounting rules of which many of them are unaware and have failed to comply with for many years. There are limited options available to accountants who have taken on new clients that have failed to make the required changes. Internal Revenue Code Section 460 requires that taxpayers' computation of income on long-term contracts be done under the percentage of completion (PC) method or the percentage of completion-capitalized cost method. The PC method of accounting must be used for the majority of long-term contracts entered into after June 10 1989, which generally requires taxpayers to recognize costs and incomes as they are completed. However, recognition of costs and income can be affected in certain situations under the PC method.

Methods, Construction industry, Tax accounting, Accounting and auditing, Contracts

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