by Dossie M Terrell

Created on: July 16, 2008   Last Updated: May 18, 2012

With the exception of daycare operations, storage of inventory or product samples, the Internal Revenue Services (IRS) is rather straightforward on things that may qualify as allowable deductions in home businesses. There are several qualifying tests to perform in determining whether certain deductions for home-based businesses are allowable, or whether performing certain aspects of your job at home as an employee are lawful under IRS guidelines.

1) Is part of the home used "exclusively" with a business or trade? If you answered "no," there are no allowable deductions. If your response is "yes," you must use a specific area of the home only for your trade or business. It can not be a space you use part of the time for social gathering and other times for business.

2) Are you an employee? If "yes," you may be eligible if conditions below in number three are met. If "no," the test of regular use and exclusivity must be met.*

3) Do you work at home for the convenience of the employer? For telecommuters if you answered "yes" and you work at home part of the time, you may qualify for a deduction if you use part of your home for business for the convenience of your employer, that is if the company requires you to work at your home and working there is not simply a convenience for you. You cannot claim a deduction if, however, your home office is merely "appropriate and helpful" to you. If your response to this question is "no," you may not claim a deduction.

4) Do you rent part of your home used for business to your employer? You should not rent any part of your home to your employer and use such rental to perform services as an employee for your employer. If your response is "yes," you may not claim a deduction; however, if you answered "no" the test of regular use and exclusivity must be met.*

5) Is your business your principle place of business? Both conditions must apply: "the relative importance of the activities performed at the place or places where you conduct your business, and the amount of time spent at each place where you conduct business." If your response is "yes" and you meet the time factor, etc., you may qualify for a deduction. If "no" continue with numbers six and seven below.

6) Do you meet patients, clients, or customers in your home? If you regularly meet and deal with clients, patients, or customers in your home and that is the normal course of your business, even though you may also conduct business at another location, you may deduct expenses

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