Home office use must be exclusive.

Hi June,

Thank you for your blog - it has been very helpful for small business owners like us. We have an S Corporation in New York, NY, under which we do a few different things - web design as well as making paper goods. We've had the business for a few years, but I only recently was able to begin working full time on the business.

I have a question about the home office deduction - I am working from home and by my square footage calculations, about 12.5% of our home is fully dedicated to office use.

However, on our tax return this year, our accountant deducted an amount that is equivalent to 25% of our home for the home office. I asked her about it, and she said that she included items other than just the home office (utilities, etc), and said that we are allowed to deduct a percentage of "common areas" for home office use as well (eg, we sometimes use the living room as a staging/drying area for the silk-screen prints that we make). Is this okay to do?

Thank you for your help!
Anna


Hello Anna,

Glad you find my blog useful. Thanks for letting me know.

I like your question. It is seldom that an indie questions her accountant taking too big a deduction.

You accountant is wrong. Your example of the living room is just like the example in my book, Self-employed Tax Solutions . There Lily Legal uses the dining room table to go through her legal briefs. No deduction.

To be eligible for a home office deduction the area must be used exclusively for business.

The only exception is for home day care business and inventory storage.

-- June

If you tax pro has an IRS reg showing something different for an S-corp, please ask her to pass it along.