Nowadays, more people are starting a home based business. Is it still an IRS red flag? Not anymore but that does not mean that they are not going to audit you. To deduct home office, the taxpayer must prove that he/she uses the home are exclusively and on a regular basis either as:

1. A place of business to meet or deal with patients, clients, or customers in the normal course of the business,

2. The principal place of business. The taxpayer must spend mos of his/her working time there and most of his/her business is attributable to his/her activities there.

When you have a home office deduction you can deduct, mortgage payment (interest only), insurance, utilities, depreciation of home, home office furniture, etc. The taxpayer must measure the square footage applicable to the home office and calculate the percentage with the total square footage of the home. The resulting percent will be use to calculate the home office expenses.