Home-Based Business Expense Guidebook

This guidebook is designed for business owners operating LLCs, Partnerships, and S-Corporations from their homes. It explains how common expenses work, how to document them properly, and provides practical worksheets you can use with your tax professional or advisor. This is an educational tool and not a substitute for personalized tax advice.

Table of Contents

1. Chapter 1: How Home-Based Deductions Work
2. Chapter 2: IRS Requirements for Home Office Deductions
3. Chapter 3: Expense Categories and Examples
4. Chapter 4: Worksheets and Checklists
5. Chapter 5: Annual Review and Next Steps

Chapter 1: How Home-Based Deductions Work

Operating a business from home does not change the basic tax rule: you may deduct ordinary and necessary expenses incurred in carrying on your trade or business. What changes is the way certain shared costs, such as housing and utilities, must be allocated between personal and business use.

For LLCs taxed as sole proprietorships, these deductions typically appear directly on Schedule C. For partnerships and S corporations, many home-based expenses are reimbursed to owners through an accountable plan and deducted at the entity level.

Chapter 2: IRS Requirements for Home Office Deductions

• Regular use: The space is used on an ongoing basis, not occasionally.
• Exclusive use: The area is used only for business, not for mixed personal activities.
• Principal place of business: The home office is where you conduct management and administrative work, or where you regularly meet clients.
• Method choice: You may use the simplified method (a flat rate per square foot) or the actual expense method, which uses a business-use percentage applied to eligible home expenses.

Good documentation of how you calculated your home office percentage and which method you selected is essential and should be retained with your tax records.

Chapter 3: Expense Categories and Examples

Home Office Use

• Home office percentage calculation based on square footage.
• Mortgage interest or rent related to the home.
• Real estate taxes on the residence.
• Utilities such as electricity, heat, water, and sewer.
• Internet service, allocated between business and personal use.
• Repairs and maintenance affecting the office area.
• Homeowner or renter insurance allocation.

Administrative Expenses

• General office supplies (paper, pens, toner).
• Shipping, postage, and courier services.
• Printing and copying costs.
• Software subscriptions (accounting, CRM, project management).
• Computer hardware and accessories.

Communication Costs

• Cell phone expense based on business-use percentage.
• VOIP or business telephone lines.
• Video meeting tools such as Zoom or Microsoft Teams.

Travel and Vehicle Expenses

• Business mileage or actual vehicle operating costs (choose one method).
• Parking and tolls incurred for business trips.
• Airfare, train fares, or rental car costs.
• Hotel and lodging expenses for business travel.
• Business meals while traveling (subject to IRS limitations).

Professional Services

• Tax preparation and accounting fees.
• Legal services related to the business.
• Consulting, advisory, or coaching fees.
• Payroll service charges.

Marketing and Development

• Website design, hosting, and maintenance.
• Domain registration and renewals.
• Online advertising (search ads, social media ads).
• Print advertising and promotional materials.
• Networking event fees and business-related memberships.

Insurance

• General business liability insurance.
• Cyber liability insurance.
• Professional liability or errors and omissions (E&O) coverage.

Business Operations

• Dues and subscriptions for professional organizations.
• Continuing education and professional development.
• Bank service charges.
• Merchant processing and credit card fees.
• Business licenses, permits, and regulatory fees.

Employee and Contractor Costs

• Employee wages and salaries.
• Employer payroll taxes and related costs.
• Independent contractor payments reported on Form 1099-NEC.

Chapter 4: Worksheets and Checklists

The following worksheets are designed for practical use. You can print and complete them by hand, or fill them in electronically. Use them to calculate your home office percentage, track monthly expenses, and confirm that documentation is in place.

Worksheet 1: Home Office Percentage Calculation

Complete this worksheet at least once a year or whenever your office footprint changes.

Worksheet 2: Monthly Expense Tracking Summary

Use this worksheet as a monthly or quarterly overview. For detailed tracking, you may wish to use an Excel sheet, accounting software, or a bookkeeping app.

Home Office Use

Administrative Expenses

Communication Costs

Travel and Vehicle Expenses

Professional Services

Marketing and Development

Insurance

Business Operations

Employee and Contractor Costs

Worksheet 3: Documentation Checklist

Use this checklist at year-end or before providing records to your tax professional.

☐ Receipts and invoices for all significant expenses are retained.

☐ Mileage logs are complete and up to date.

☐ Home office percentage calculation is documented and stored.

☐ Bank and credit card statements are downloaded and organized.

☐ Contracts, leases, and insurance policies are on file.

☐ Proof of payments (canceled checks, confirmations) is available.

Chapter 5: Annual Review and Next Steps

At least once a year, review your worksheets and compare them to your financial statements and tax return. Confirm that:

• All major expense categories have been considered.
• Home office calculations match the method reported on the tax return.
• Owner reimbursements (for partnerships and S corporations) are handled under an accountable plan.
• Supporting documentation is retained for at least the recommended retention period.

Share this completed guidebook with your CPA or tax advisor to ensure the numbers are properly reflected on your returns and to discuss any planning opportunities for the coming year.

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Eric S. Degen, CPA Titan Accountancy, LLC

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www.degencpa-titan.com