When doing tax return, a lot of people have this fear that if they do home office deduction, the IRS would audit their tax return. For this, I asked a CPA friend of mine and here is her answer.
It is normal for a small business owner to have a home office and claim some home office deduction in his Schedule C.
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. But only to the business use portion.
The IRS is quite strict on this, but as long as you meet the basic requirements and have a reasonable business use percentage you will be fine.
There are two basic requirements for your home to qualify as a deduction:
1. Regular and Exclusive Use.
You must regularly use part of your home exclusively for conducting business. For example, if you use an extra bedroom to run your online business, you can take a home office deduction for the extra bedroom.
2. Principal Place of Your Business.
You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
So based on her suggestion, it should be fine if you are truely running a business from home. In fact, each year in America, there are millions of tax returns that have home office as tax deduction.
Another question people often ask is, whether the garage area should be counted in the home office calculation?
The short answer is NO. Here is why.
Garages, porches, sheds, etc. are typically not classified as the home's living space. Thus, they should NOT be calculated as a percentage of the total property used for the home office calculation.