Whether you are self-employed or an employee, if you use a portion of your home for business, you might be able to deduct the associated costs.
A home office deduction is generally easier for self-employed individuals to claim. But even then, the Internal Revenue Service has certain requirements a taxpayer must meet.
First, your home office area must be used regularly and exclusively for your business needs. You can’t set up a computer in your den, sporadically type invoices and claim that room as your home office.
Exclusive also means what it says, to a point. The IRS says the area of your home can be a room or other separately identifiable space. But the space, says the IRS, does not need to be physically marked off from the rest of the room. Regardless of what specific space is your home office, you must use that room or area just for work.
The business part of your home must be either your principal place of business or where you meet or deal with patients, clients or customers in the normal course of your business. A separate, detached structure, such as a garage or guesthouse, that is used for business also may qualify as a home office.
A few years ago, the IRS broadened the business activities that can be considered in determining whether a home office is a taxpayer’s principal place of business. Now, if a home office is used exclusively and regularly for the administrative or management activities of your business, it also qualifies.
Such things as billing operations, keeping your books and records, ordering supplies or setting up appointments qualify as administrative duties. Be careful here. The IRS cautions that your home location must be the only place where you can fulfill these responsibilities.