If you work from home, part of your household expenses are actually business expenses and you can deduct them on your federal income tax return. You may have your office at home; maybe you meet with patients, clients or customers; you might have a shop set up in the garage or basement, or maybe you store inventory and samples at home; or you might run a daycare facility. In all these cases, if you meet the tests and keep track of your expenses, you can take advantage of a significant tax benefit.
If you carry on a trade or business from your home and you meet certain Internal Revenue Service (IRS) tests, you can claim a tax deduction for business use of your home. Also, if you are an employee and work part-time or full-time from your home, at the convenience of your employer, you also may be able to claim an itemized deduction for the business use of your home. Deductible expenses include the allocable portion of your mortgage interest, real estate taxes, and depreciation if you own the home; rent if you are leasing your home; and insurance, utilities, repairs, maintenance, and other expenses.
Does the business use of your home qualify?
The following are the different ways in which you may qualify to take a deduction for business use of your home.
You have a certain part of your home that you use exclusively and regularly as your principal place of business.
You have a place that you use exclusively and regularly to meet or deal with patients, clients, or customers in the normal course of your trade or business.
You have a separate structure, not attached to your home, that you use in your trade or business.
You have a place that you use regularly for the storage of inventory or product samples.
You use your home as a daycare facility.
Provided that you use a part of your home exclusively and regularly for administering or managing your business, and you don’t have any other fixed location where you carry out these activities, your home will qualify as your principal place of business. Visiting customer or client locations, or performing some of your work outside your home will not necessarily disqualify you from claiming a tax deduction for business use of your home. What is important is that your principal administrative and management activities are carried out from your home. These activities include billing, keeping records, placing orders, setting up appointments, and writing and sending reports.
If you work at different locations in addition to your home, you need to consider two aspects in determining whether your home is actually your principal place of business: