Principal Place of Business Test

Administrative activities use of home for business purposes

Performing essential aspects of your business at home such as bookkeeping and other administration activities dos not make your home the principal place of business.

The rules allow the principal place of business to include the part of your home in which you conduct administrative and managerial functions if your business does no have another fixed location to carry out these functions.

Administrative and managerial functions include:

• bookkeeping,
• scheduling appointments,
• billing, and
• ordering of supplies.

What are home office deductions?

Even though it is referred to as a home office deduction, the part of the house you use does not have to be an office. In fact, it can be a separate structure and does not need to be the main location of the business.

If you use the home office as a substantial and regular site to meet and deal with clients, then you meet the test even if you do have another office for your business at another location.

Exception to the Principal place of business test

There is an exception to the principal place of business test. The deduction can be taken if the part of your home you use is the only fixed location of your business. The space can be used for storage of inventory or product samples if it is for your business and used on a regular basis.