2. Principal Place of Business
In addition to using part of your home regularly and exclusively for business (see Section 1), to take deductions relating to your home, your home must be your "principal place of business"--or, alternatively, if your home isn't your principal place of business, you can qualify for the deduction if you meet clients or customers at home (see Section 3) or if you use a separate structure on your property exclusively for business purposes (see Section 4).
Establishing that your home is your principal place of business is simple if you have only one type of business and conduct it only at home. It gets more complicated if you have several businesses or conduct a business from more than one location.
The IRS says that you can have a principal place of business for each trade or business in which you engage. This means that if you use your home for a part-time enterprise, it may qualify as a "principal place of business" for that business.
| Example | | Alma teaches school. As a teacher, her principal place of business is the school where she teaches. She also runs a public relations consulting company and uses a part of her home as the headquarters for that business; her expenses for this business use of the home should be deductible. | |
If you have more than one business location, including your home, for a single trade or business, you must figure out if your home is your principal place of business for that enterprise. Again, if it isn't, you can't take a deduction for the business use of your home.
Your home qualifies as your principal place of business if:
- you conduct the administrative or management activities of your business there, and
- you have no other fixed location where you conduct those activities.
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 to do such things as keeping your books, scheduling appointments, doing research and ordering supplies. As long as you have no other fixed location where you do such things--for example, an outside office--you can take the deduction.
| Example: | | Ellen, a wallpaper installer, performs services for clients in their homes and offices. She also has a home office which she uses regularly and exclusively to keep her books, arrange appointments and order supplies. Ellen is entitled to deduct expenses for that part of her home. | |
Home-connected expenses. As noted earlier, the IRS rules discussed in this chapter apply only to home-connected expenses such as utilities, rent, depreciation, home insurance and repairs. You needn't conform to these rules in order to deduct other business expenses. If you have a bona fide business and don't qualify for deducting home-connected expenses, you can still deduct many other business expenses--for example, the cost of supplies, postage, advertising and long-distance phone calls.
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