The temptation to forget all about taxes for a while may never be greater than right after April 15, but resist it! There is one tax-saving strategy that every jewelry, gem, or bead artisan can profit from right now. Beginning in 1999, Congress has made it easier than ever to claim a tax deduction for the expenses related to maintaining a home office or shop.

That's right, whether you work at home or operate a home-based craft business, many expenses are clearly tax deductible. In the past, however, many self-employed craftspeople have been denied a tax deduction for the expenses associated with an office in the home - at least for performing primarily administrative functions there, and especially if they performed those functions at other locations and only oversaw operations while at their home offices. Now, every artisan can claim deductions for an office in the home even if this is where only administrative or management activities for the business are performed.

This means that an artisan will be allowed a home office deduction under this rule even if services are provided to customers or clients at some location outside the home. In addition, the deduction is allowed even if some of the administrative or management activities, such as billing, are performed by others at other locations. The home office deduction will be available under the new rule even though the artisan performs the same administrative activities in other places, such as in a car or hotel room, that are not fixed locations, and even if another office is available for performing those same activities.

Even under these rule changes, however, no craftsperson is automatically entitled to deduct the expenses of using his or her home for business purposes. Of course, if those expenses are attributable to a portion of the home (or even a separate structure) that is used exclusively and on a regular basis as a place of business, the expenses may be deducted - subject to limitations and restrictions.

The tax rules define a place of business as being either the principal place of any business carried on or as a place of business that is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of business. The exclusive-use test or requirement is not met if the home space is used for both business and personal purposes.

An unusual exception to the above rule is provided for what our lawmakers call a “wholesale or retail seller,” whose dwelling is the sole fixed location of the craft operation. In this case, the ordinary and necessary expenses allocable to the space within the dwelling unit that is used as a storage unit for inventory are tax deductible provided that such space is used on a regular basis and is a specifically identifiable space suitable for storage.

Fortunately, most jewelry, bead, and gem artisans have a specific area within their home that is used solely and expressly for the purposes of carrying on a trade or business. However, even with a qualifying home office or shop, there is a limit to just how much may be claimed as a tax deduction.

Under our tax rules, the home-office expense deduction is limited to the total income derived from the craft activity - reduced by any expenses of that activity that may be deductible regardless of whether there is a qualifying home office or shop. In other words, regardless of whether a home office exists, such expenses as taxes and mortgage interest may be deductible. With a home office or shop, a portion may be deductible as a home office expense and the balance as a personal itemized deduction.

Any deductions that may be disallowed because they would create or increase a net loss from the business may be carried over to future years, subject to the same limit in the carryover years. There are many artisans who have regular employment elsewhere as well as those who are employees of their own creative businesses who maintain home offices. Fortunately, employees are also permitted to claim a tax deduction for home office expenses - albeit limited and subject to the restrictions and ceilings placed on personal itemized deductions.

In order for employees to qualify for the home office deduction, they must meet the requirements already mentioned. In addition, the exclusive use of the home office (or shop) must be for the convenience of the craftsperson's employer. And that doesn't mean renting the home (or a portion of it) to the employer. The IRS and the courts frown on this tax dodge.

Generally, an employee's home office expenses must be taken as a miscellaneous itemized deduction subject to the two percent floor on Schedule A of Form 1040. Those doing business as sole proprietors, of course, can use Schedule C of Form 1040 (Schedule C-EZ may not be used).

On a more positive note, our tax rules permit individuals, employees, or craft business owners who use their homes as their principal place of business to deduct transportation expenses that would otherwise be classified as nondeductible commuting costs. Unlike someone who must commute to and from work, the employee with a home office or a craftsperson using the home as his or her principal place of business is permitted to deduct the cost of transportation, that is, going from that place of business to a customer's or client's office or place of business or merely running business errands.

Today, almost everyone, employee, sole proprietor, or employee of her or his own business, is entitled to an income tax deduction for the expenses associated with maintaining a home office. Every artisan can now benefit from the existing tax deductions that are available - and legal - for the use of a home office or shop. Naturally, they must obey the rules.