Home Office

If you are a partner or a sole proprietor, you can use the simplified method of taking up to 300 square feet of office space at $5 a square foot for a business deduction of $1,500 a year. The home office has to be used regularly and exclusively for business activities. Using the simplified method still allows you to deduct your mortgage interest and real estate taxes on your home if you itemize on schedule A. If you are an employee of a corporation, then there is a different road to go. The employer should reimburse the employee for a % of the indirect costs of the principal residence used for the business. For example if 15% of the home is used for the business, then 15% of the home utilities, repairs/maintenance, security, and insurance should be paid to the employee as a nontaxable working condition fringe at least once a year. The employer could deduct the business expense and the employee would not have to report the income. Note that depreciation cannot be part of the employee reimbursement. The IRS says that lawn care and landscaping are not qualified home office expenses but some court cases have held otherwise.