Can I work out of My House

​Working from home can have its advantages but the IRS requires that the rules are followed. Deviations from the rules are grounds for audits and tax penalties that no one wants to endure when starting a new business. It's important to understand the rules for use and for deductions before you are too far into your new office space.

Deductions for the business use of your home can be considerable and worth taking if certain rules are followed.

• The first rule is that there is a space that is used exclusively for the business.
• Deductions that are allowed (that are normally not deductible for wage earners) include electricity, gas, water, cleaning service, security system or homeowners insurance.
• Depreciation of the home is also allowed, however, this must be taken into account upon the sale of your home.

If you operate your business out of your personal residence, there is business insurance available for the business. However, the homeowner’s insurance policy should be reviewed in order to ensure that there is enough coverage. Liability insurance should be obtained if there is any possibility that clients or customers may come to the home.

Large additions and remodeling for the business can be depreciated along with furniture and office equipment. The assets purchased may be written off completely under Section 179 if the business is profitable in the year of purchase.

Daycare providers have special rules when calculating the percentage of business use. The percentage must take into account the hours worked as a daycare provider.
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When is it time to move out of the house and rent office space or buy a building?

• Is there simply not enough room?
• What is the capacity of your home versus an office space or building?
• Would this look more professional for your business?
• Are there family issues to consider, such as child care?
• Does your business have inventory issues?
• Do you need storage for the product that you are selling or producing?
• Are you considering hiring employees?