Home office deductions can offer excellent tax savings for entrepreneurs. However, there are very specific rules that home-based small business owners must follow in order to qualify.
Principal place of business
Your home office must be your principal place of business. In the tax law, this means you earn your money from home or use your home office for significant administrative or managerial activities and do not have another business location. Freelancers working from home usually can satisfy the test easily. But consultants who spend most of their time at clients' offices may have a tougher time. For example, if you're a plumber or an interior decorator and earn money in the field, you can claim a home office deduction only if you can show that you use a home office to schedule appointments and keep your books for work and have no other office.
Last updated: Mar 1, 2006
BARBARA WELTMAN is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser’s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and SBA.gov. Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row. @barbaraweltman