Tax Changes of Interest to Translators and Interpreters

By Glenna White

Before we get started: Let me make it clear that I am not a tax expert or a lawyer, but as a freelance interpreter and translator, I have been following the matters discussed in this article with great interest. The information was gathered from various sources, including IRS publications and tax and accounting software programs. Obviously, before taking any deductions, check with your tax advisor and do your own reading!

IRS has our number! The IRS has now officially created a classifying number for the translating and interpreting profession. In the past, we were forced to classify our Schedule C income using non-specific codes such as "other services." Beginning in 1998, a separate Principal Business Code has been created for Translation and Interpretation Services: 541930. The code is entered at the top of the page of Schedule C, on Line B. With the creation of this category, perhaps it will be easier to gather data regarding the number of people working in the field in the US, as well as income information in general. What is most satisfying, however, is that we are now officially recognized as a profession. Congratulations to us!

Home, Sweet Home. Another item of interest to freelancers, particularly to interpreters, is the more generous home office deduction which takes effect in tax year 1999. Many freelance translators probably already qualified to take a home office deduction. In the past, one of the criteria for determining whether the home office deduction could be taken was whether or not your home was your "principal place of business." Most freelance translators working from their homes would be able to consider their home their principal place of business. However, for freelance interpreters, who most often travel to a work site instead of actually performing their jobs at home, the deduction was questionable. The rule for this deduction stated that those people with a home office who spent significant time working away from it might not qualify.

This was based on a U.S. Supreme Court case (Soliman v. Commissioner of Internal Revenue, 113
S. Ct. 701 (1993)), in which an anesthesiologist was denied a home office deduction. Dr. Soliman, who performed his anesthesiology duties at a hospital but did not have an office at the hospital, believed he should be able to take the home office deduction for an office in his home where he performed other work duties, including writing reports and administrative tasks. The Supreme Court ruled that he was not eligible to take the deduction because the home office was not his principal place of business.

As of 1999, however, the tax rules have been changed, and now include an expanded definition of "principal place of business." What it boils down to is that you may now qualify to take a home office deduction if:

1. You use the home to conduct "administrative or management activities" of a trade or business;

2. There is no other "fixed location of the trade or business" where you conduct "substantial administrative or management activities" of the trade or business; and

3. You meet other rules relating to the requirement that the office be a separate, identifiable space and that it is used regularly and exclusively for business.

Remember, though, you cannot use the new rules for the home office deduction for your 1998 tax return. But be sure to keep track of your rent, utilities, and any home improvement expenses for use in filing next year, and read the IRS publications on the subject for more detailed information.