Telecommuting Practice Managers: Tax Issues, Part Two

If your physicians/owners have allowed you to begin telecommuting in your position as practice manager, you've all become part of a growing trend.  Realizing that telecommuting can be a win-win for practices and their employees, many doctors and practice owners are shifting to part- or full-time virtual employment when possible.  As a telecommuting practice manager, you enjoy more flexibility in your work life, as well as saving time, energy, and transportation expenses.  Your practice benefits by lowering overhead costs, retaining your expertise, and earning your loyalty. 

When it's time to do your taxes, however, you might wonder whether virtual employment is really worth the effort.  Taking advantage of tax deductions without encouraging – or worse, failing – an IRS audit is of paramount concern.  These tips, while not meant to take the place of the advice of an experienced tax professional, can help. 

• Distinguish between direct and indirect home office expenses. Direct expenses are those that relate only to the part of the virtual employee's home that is used strictly as a home office.  Keep in mind that improvements or repairs to this space are deductible.  Indirect expenses extend to both the home office and the living space of the home.  Examples include real estate taxes, homeowner insurance premiums, and repairs to the entire home.  These expenses are usually proportionately deductible (for example, if one-fourth of the home is used as a home office, one-fourth of indirect expenses are deductible).   
• Understand the meaning of "regular and exclusive use." This is of critical importance, especially if you are audited.  The home office cannot function as part of your living space and still meet the definition of regular and exclusive use.  For example, if you use your den as your home office during the day, but your children watch television and do their homework in the den in the evening, the den does not provide regular and exclusive use as a home office.  Conversely, if you use a laptop and move regularly about the home, working by turns in your living room, bedroom, and the sundeck in your backyard, but you don't have a functioning home office, your situation doesn't meet the requirements of regular and exclusive use.  For practice managers as well as most other virtual employees, working from home part-time typically does not allow any part of your residence to meet the regular and exclusive use criterion.  An exception might be met if you perform work-related tasks at your home office that are never performed in your practice's brick-and-mortar office. 
• Determine whether or not your home office exists "for the convenience of the employer." If you retain an office at your practice's brick-and-mortar office, your home office does not exist for tax purposes.  If your physicians/owners requested that you work from home, your home office can be considered to exist for the convenience of the employer.  However, this is not usually the case for practice managers, who more often have asked to become virtual employees.  In this instance, you must show that the work-from-home arrangement was established for your employer's benefit, even though you elected to telecommute. 
• Home office deductions must be less than your gross income for the tax year.  You may not claim telecommuting deductions that exceed your annual gross income. 
• Never claim reimbursable expenses. If your owners/physicians reimburse you for certain home office expenses such as office equipment, office supplies, or utilities, it follows that you may not deduct those expenses on your income taxes.  Keep in mind that your employer may be claiming a deduction for these reimbursements; if you also claim them, you could trigger an audit for yourself, your employer, or both.     
• Learn about depreciation for computers and other equipment. If you buy a computer or other business equipment and use it only for work purposes, you can depreciate the item, subject to certain limitations.  If your employer purchases the item for you, it can be depreciated only by the employer.  

To find out more or to join Practice Manager Network at: http://www.practicemanagernetwork.com  or you can contact us at 877-315-3338 and we will be happy to assist you.