“I knew exactly what to do. But in a much more real sense I had no idea what to do.” - Michael Scott

Ever feel that way about tracking business expenses? Because I sure do! At times it takes hours of research and reading IRS rules to figure out if a business expense is actually a business expense. 

The home office is another one of the trickier business expense/tax deduction. And I’m going to break down the details below so you can know whether or not your home office qualifies as a business expense.

Sometimes we have an actual room to dedicate as our office space. And other times we get creative with nooks and crannies. Transforming them into a business oasis. Like the example I gave in the video.

In my opinion, I do not know why there is so much fuss around using a nook or cranny or small space in a larger room as dedicated office space. I mean not everyone has an actual room they can use as an office space.

Along with that the general rule for business expenses tends to be if it’s used exclusively and regularly for business then it’s an expense…but that is not true for home offices. 

Don’t be like the business owner in the video who got a very rude awakening.

So the real question then becomes how do I know if this office space actually qualifies as a home office expense?

I dive into the three questions you need to ask yourself below to determine if your home office meets the very specific requirements to be used as a home office expense.

Is it used for business regularly?

In order to qualify as a home office expense, it must be used regularly, which means you need to use it often for it to count as a home office.

For example, if you have this amazing office space but prefer to work at a coffee shop (no judgment - those are nice cozy, quiet spots to work 🥰)… your home office space may not qualify as a home office expense because you do not use it regularly.

On the other hand, if you enjoy working at coffee shops AND you also use your home office regularly let’s say for a couple hours in the morning, or afternoon, or evening - then you do use it regularly. It doesn’t need to be used for a long time throughout the week to be considered as being used regularly. It just needs to be used throughout the week on a regular basis.

In other words, using it regularly does not mean it’s the ONLY place you work. It just means you use it on a regular basis to work.

Is it used 100% exclusively for business?

In order to qualify as a home office expense, it must be used exclusively. This means the office space is ONLY used for business purposes. 

 Stuff like… conference calls, meetings, brainstorming, recording a podcast, recording videos, creating content, creating new products or services. That’s not an exhaustive list but you get the idea. 

Anything that is not business related should not be happening inside the home office.

Is it a completely separate room or do you have to walk through it to get somewhere else?

In order to qualify as a home office expense, the room must also be completely separate with a door or doors that can be closed.

If it is in a nook/cranny/room/hallway and you need to walk past or through it to get somewhere else in the house, the space would not qualify as a home office expense.

This includes not having to walk through it to get to another room in the house. If you need to walk through your office to get to another room in the house, the IRS does not currently view it as a home office.

What’s the next step?

If it is a separate room AND used 100% for business ONLY AND used on a regular basis - then there is a standard square footage rate you can deduct on your taxes. You simply need to know the square footage of your home office and the total square footage of your house. Your tax preparer can then calculate your home office expense. 

Depending on your expenses throughout the year, it may be more beneficial to itemize your home office expense versus taking the standard deduction. Therefore, it is typically a good idea to also keep records of things like mortgage interest, utilities, insurance, repairs, and maintenance. 

Most of the time, the standard deduction is just as good if not better than what the itemized deduction would be. However, if you have the information your tax preparer can do a comparison of which deduction (standard or itemized) would benefit you more.

Please Note:  I take a conservative approach to business expenses and tax deductions. Meaning I do my best to not include anything that would raise a red flag during an audit. You should always talk to your CPA to better determine if your office space is considered a deduction.

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