In addition to using part of your home regularly and exclusively for a business, your home must be your "principal place of business." If you conduct your business only from home, then you meet this requirement. But if you have more than one business location (including your home) for a single trade or business, you must determine whether your home is your principal place of business for that enterprise.
Your home automatically qualifies as your principal place of business if both of the following are true:
In other words, your home doesn't have to be the place where you generate most of your business income. It's enough that you regularly use it for tasks such as keeping your books, scheduling appointments, doing research, and ordering supplies. As long as you have no other fixed location where you do these things -- for example, an outside office -- you should be able to take the deduction.
Alternatives to principal place of business rule. Even if your home is not your principal place of business or you have another location, there are two other ways to fulfill the principal place of business requirement:
If you qualify for the home office deduction, you must figure the amount of your deduction on IRS Form 8829, Expenses for Business Use of Your Home. (You can find this and other tax forms at the IRS website, www.irs.gov.) Then you enter the total amount of the deduction on Schedule C, Profit or Loss from Business. Attach both Form 8829 and Schedule C to your Form 1040 tax return.
Be ready to prove to the IRS that you are entitled to take the home office deduction. Here are some steps you can take to help establish your legal right to deduct home office expenses:
For more information on the home office deduction as well as many other deductions for small business owners should take, see Home Business Tax Deductions: Keep What You Earn, by Stephen Fishman (Nolo).
1 | 2