Do you Qualify for Home Office Tax Deduction for Small Business Owners and Professionals?

There are three most basic qualifiers defined by the IRS for Small Businesses and Professionals to be able to take advantage of the Home Office Tax Deduction.

Rules to Qualify for Home Office Deduction

Trade or Business Use:

First of all you must be engaged in a trade or business to take advantage of this deduction. Employees can also take Home Office Deduction in certain situations. We will cover more on individual deductions for Employees in the next article. You cannot take a home office deduction if you are using it for an activity that is not your trade or business. For Example you use part of your home to review investment journals and carry out your personal investments. You are not a broker or a dealer, so your activities may not be considered part of a trade or business and hence you cannot take home office deduction. Regular and Exclusive Use:

Specific area of your home must be used exclusively and regularly for your business or trade. You don't need a permanent partition to mark the space. For example you use part of your basement exclusively to perform administrative and management tasks of your business, review business paperwork, check online communications, teleconference with clients etc on a regular basis and not just once in a while. Your family does not use the same space for recreation or other non-business purposes. You may be able to claim costs associated with part of the basement as a deduction for use as home office, provided you qualify on other rules.

Exception to Exclusive Use Rule:

There are exceptions to the Exclusive rule. if you are in a wholsesale or retail trade and you use part of your home for Storage of Inventory or Product Samples and your home is the only fixed location of your trade, you can take the home office tax deduction. For example, if you sell cosmetic goods in an online store and use your basement to store samples and inventory, you may be able to take home office tax deduction. Even though you may use your basement for personal use, you can still take the deduction.

Principle place of Business:

You can have more than one business location for your trade or business including your Home Office. If your Home office can qualify as the Principle Place of Business, you can take the Home Office Deduction. For example you may have multiple retail outlet stores for your trade. However you use your home office exclusively and regularly for administration or management activities such as preparing financial and business performance reports, running payroll for employees, online banking, planning, marketing, advertising etc, you can take the home office tax dedcution.

Exception to Principle place of Business:

You may be able to take Home Office Dedcution, even though your home office may not qualify as Principle Place of Business. If you meet with your clients, patients or customers on a regular basis. Doctors, Dentists, Attorneys, Brokers, Consultants seeing clients patients at home generally meet this requirement. If you have a home based retail business wherein you organize a group of customers to get together and share your product samples with the intent to sell the goods, you may qualify for the home office tax deduction.

Day Care Facility:

If you are using part of your home as a licensed day care Facility for children or persons older than 65 years of age or persons that are mentally or physically challenged, you can take advantage of this Home Office tax deduction.

There are several other rules and definitions that IRS uses to qualify the Home Office deductions. If you are planning to take advantage of this deduction, I strongly recommend you take help from an expert tax accountant. The money you will save on the taxes will be well worth the professional fees.

Related Artcile:

How Much Home Office Deduction can I take? (Insert link to Next Article)


Krutika is the founder of K&M Accounting and Tax Services L.L.C. She comes from a family of accountants and is a fourth generation Accountant. Krutika provides direct leadership and consultation to Small Business clients. Prior to starting KM Accountant, Krutika worked in multiple positions for 12 years in the US and India with public accounting, tax consulting, retail and educ...

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