There are three requirements you must meet before you may take a home office deduction: the home office must be (1) a specific area of your home (2) used regularly and exclusively (3) as your principal place of business. The third requirement may also be met if you use the home office to meet with patients, clients, or customers even if the office is not your principal place of business.
1. Specific Area of Your Home
The “specific area” may be a separate room or a part of a larger room. The IRS only requires that the area be separately identifiable. Partitions are helpful, but the home office deduction will apply as long as you can clearly define the space that makes up your home office.
2. Used Regularly and Exclusively
This is really two requirements in one. The “regular” requirement means that you may not use the home office merely occasionally. There is no specific number of hours or days the IRS expects, but your use of the home office should be substantial enough that it is integral to your business.
The “exclusive” requirement means that you must use the area for business reasons only. Any personal use at all will prevent the area from being a home office.
3a. Principal Place of Business
A principal place of business is not necessarily the one in which you spend the majority of your time. Regular administrative actives, such as record-keeping, bill paying, report writing, and appointment setting will classify the home office as a principal place of business.
3b. Meet with Patients, Clients, or Customers
If you physically meet clients in your home office and do so regularly, it will qualify for a home office deduction even if it is not your principal place of business.
Incorrect home office deductions are one of the leading causes of IRS audits, so make sure your home office is subject to the deduction before attempting to take it. If your LLC is a disregarded entity or a pass-through entity (i.e. you have not elected to be taxed as a corporation), the home office deduction will appear on your personal tax return. If you are confused about whether you may take the deduction or how to apply it to your taxes, consult a qualified tax attorney or tax accountant.