Does
Does The IRS' New Safe Harbor Rules Help Or Hurt Remote Workers?
Alex Konanykhin
Aug, 2013

TransparentBusiness IRS rules contribute to outsourcing offshore --- Many companies chose to outsource offshore as any work which can be performed remotely by a telecommuter can also be performed by a worker abroad which does not have to report to the IRS

Editor’s Note: Alex Konanykhin is a successful serial entrepreneur, book author, business expert and co-founder of TransparentBusiness.com.

The following article is by Priyanka Sharma is a Product Marketing Manager atOutright.com, online bookkeeping software for small businesses.

Whether it’s a colleague, neighbor or your own boss, somebody seems to be talking about the pros and cons of telecommuting. Its virtues, its evils and its overall definition in today’s working world make telecommuting a hot button topic.

The biggest example came last winter whenYahoo YHOO +1.03%CEO Marissa Mayer announced her new policy requiring Yahoo’s telecommuting employees to come back to the office every day, starting this summer. Mayer’s news triggered a national debate about the ever-changing role of working from home versus working in the office.

Regardless of all the debates, many people believe having a home office brings with it the great privilege of receiving anice tax deduction.Great news all around, right? This is not always the case.

The first problem with assuming working from home is all joy is the phrase itself. The term “working from home” is very ambiguous and is a blanket statement that covers many types of working arrangements from solo entrepreneurs to parents working for corporations.

One organization that is very aware of this murky topic is the Internal Revenue Service (IRS). Based on their current approach to the Home Office Deduction, it appears the government agency may actually align itself with Mayer when looking at telecommuting.

While the IRS is certainly not discriminatory in nature, its policies towards telecommuters are very different from those towards self-employed people. An example is the latest Safe Harbor exception for the home office deduction.

Until this year, our country’s tax laws were inadequate to be able to accommodate the ever-popular telecommuting trend. The original deduction form was a complicated, 43-line form to claim a write-off. The instructions alone took up four pages of text, and involved computations such as depreciation and utility bill expense allocations.

This past year, the IRS releaseda new Safe Harbor methodin which workers can deduct $5 per square foot of home office space, up to a maximum of 300 square feet. According to the IRS, the new guidelines are expected to save small business owners 1.6 million hours each year in terms of recordkeeping and paperwork.

While the new Safe Harbor rule is certainly handy, it may not always the most sensible financial move in certain situations. Apart from issues of maximum viability, the new rules are actually quite different for telecommuting employees versus small business owners.

The nature of telecommuting is often at odds with the home office deduction. Telecommuters typically receive some form of reimbursement for their home office set-up directly from their employers. However, guess what the new Safe Harbor rules state? If your company compensates you for your set-up in any way, you are not eligible for a deduction.

Additional rules state that you can only receive the Safe Harbor deduction if you work from home because of your company’s convenience, not your own. This is a disadvantage for those workers who telecommute, especially for personal reasons, such as caring for young children or aging parents. In fact, it seems to penalize them for having no choice but to keep a home office.

As can be seen, the home office deduction is not much of a friend of the average telecommuter. None of the rules set up by the IRS seem intended to discriminate between small business owners and employees. However, in practice, the extensive fine print on who can actually utilize and benefit from the home office deduction —-whether it’s standard or Safe Harbor —- appears to prohibit many people from taking advantage of this positive opportunity. Hopefully, we will see progressive trends from a national organization that holds so much sway in the country’s corporate world.

Post By
Alex Konanykhin
@AKonanykhin
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