When you become self-employed, your experience as a taxpayer changes dramatically. As one person reflected, "My biggest shortcoming was in not researching my tax situation. I was totally unprepared for the responsibility of shepherding part of my income to the IRS. Consequently, I worried myself sick!"

Whether taxes cost you your hair or turn your hair gray, or you experience delight in leading a more tax-deductible lifestyle as you see formerly non-deductible parts of your cost of living become tax deductions depends on your getting the information you require and acting on it. Your goal should be to know in general what you're entitled to under the law, so that you neither overlook items you should be deducting nor exaggerate your deductions recklessly - in other words, so that you operate from a smart, realistic middle ground.

First, let's consider the tax benefits of working from home. Fundamentally the tax system of the United States recognizes what President Calvin Coolidge said in 1925: "The business of America is business." To be certain, hungry for tax revenue. Congress is eliminating business deductions. Beginning in 1994, the meal and entertainment deduction was reduced to 50 percent; club dues (including airline, athletic, and country clubs), even though you are a member only because of business and use the club only for business, are gone; and the share of the dues you pay a professional or trade association that is used for lobbying is not deductible (and it's up to the association to notify you of what percentage of your dues goes to lobbying).

Nevertheless, business deductions continue. You need to take full advantage of them in order to help offset lost fringe benefits such as health insurance, pension plan, sick leave, and vacations. These are worth between 25 percent to 50 percent of employee wages. That means that if you were earning $30,000 a year as a salaried worker, your fringe benefits were worth between $7,500 and $15,000.

Second, many people struggling to make it on their own, after having been disposed of by downsizing corporations, are directly hurt by the tax policies of government. Over a hundred thousand individuals each year have their business deductions taken away from them by being classified "common-law employees." The Supreme Court of the United States also dealt home-based businesses a painful blow in the Commissioner of Internal Revenue v. Soliman case, by interpreting the law so that it took away the home-office deduction from hundreds of thousands of people who work from home rather than at home. Consider this: If the same standard applied to home-based businesses in the Soliman case were to apply to all businesses, every business that principally serves its public away from its headquarters - taxi companies, ambulance companies, locksmiths, installers of all kinds, mobile everything would not be able to deduct their offices, garages, storefronts, and warehouses!

In general, the deductions you can claim when working from home fall into one of two categories: home-office expenses and ordinary business expenses. You can claim ordinary business expenses whether your office is in a downtown building, a suburban storefront, or in your home.


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