What is a Home Office?
A home office refers to an office designated within an individual’s residence for running official business functions. Home offices are common among people who work from home, either on a part-time or full-time basis, because they are an affordable and convenient option compared to traditional offices.
A majority of small businesses are shifting their operations to home offices as a way of reducing their costs of operations. Such businesses use the home office to conduct administrative duties relating to their day-to-day operations.
The term “home office” can also be used to refer to the administrative headquarters of a large corporation with locations in different parts of the country or around the world. All the different branches of the corporation use the home office as the nerve center, from where key decisions are made. The heads of the various corporations’ offices report to the overall head of the corporation who is based at the home office in a specific city.
- A home office refers to a space within a residence that is designated for performing official business activities.
- Home offices have gained popularity in recent years, as employers choose to allow their employees to work from home, without the need to commute to the office.
- A home office may also refer to the headquarters of a company with branches in other cities or countries.
How a Home Office Works
Working from home offices is becoming a more common practice in the 21st century. With the growth of the internet, home offices offer a cheaper and more convenient option compared to operating offices in large metropolitan areas. Ordinarily, renting a traditional office is costly to run, and business owners incur various costs, such as rent, utilities, furniture, stationeries, office equipment, and other costs.
On the other hand, a home office is cheaper to maintain since there are no incremental costs, such as monthly rent and operating costs. A business owner can easily convert one of the rooms in their residence into an office space, which they can use to meet clients and keep the business records, files, and other information required in running the business.
With technological advancements in communications and work tools and easy access to high-speed internet, many companies are now offering their employees a chance to work remotely from home. The opportunity in boosting the popularity of home offices, where employees can perform their responsibilities at home, without being physically present at their workplace. In 2020, the economic shutdown due to the Covid-19 pandemic pushed companies to quickly adapt. Industries that allow employees to work from home include digital technology, real estate, accounting, finance, human resources, and publishing.
Professionals working as consultants, lawyers, accountants, and engineers may also choose to set up a home office, in addition to their main offices in the metropolitan areas. Such professionals can use their home offices to perform office work remotely, meet clients online, and even host physical meetings with colleagues and clients.
Advantages of a Home Office
A home office offers various benefits compared to a traditional office.
1. Saves both time and money
First, working from a home office saves both time and money, which would otherwise be spent commuting from an employee’s residence to their workplace. When commuting to the workplace on a daily basis, an employee has to incur additional costs in transport charges, not forgetting traffic snarl-ups that may eat into the employee’s productive time.
2. Casual attire
Second, a home office does not require the employee to wear formal business attire that is required in the traditional workplace. As long as the employee performs the required responsibilities, the employer is not interested in the employee’s casual appearance or behavior at their home office. The employee can maintain a healthy work-life balance, increase productivity at work, and boost their mental and physical wellness.
3. Lower overhead costs
Lastly, a home office helps an employer save costs by allowing non-essential employees to work remotely from their home office. Therefore, the employer incurs lower costs in rent, refreshments, stationeries, utilities, and other expenses required in running a physical office.
Home Office Expenses
When working from a home office, an employee incurs various costs – such as internet, utilities, and stationeries in the performance of work-related activities within their residence. The expenses incurred in running a business from a home office are deductible through the office tax deduction rules provided by the Internal Revenue Service (IRS). A business owner can only deduct expenses that are exclusively used for the regular operations of the business.
Also, the IRS states that business owners should determine the percentage of space exclusively used for business purposes at home. Only the space used exclusively for business activities qualifies for tax deductions. The qualified expenses include utilities, mortgage, rent, property taxes, phone lines, office supplies, and computer equipment. A business can claim various types of expenses that are incurred in the regular operations of the business.
The following are some of the rules set by the IRS to determine if a home office qualifies for tax deductions:
- The business uses the home office exclusively and regularly to carry out business activities.
- The business uses the home office to meet patients, clients, and customers.
- The home office is a separate structure from the home, and it is used exclusively for trade or business activities.
- It is used regularly for storing materials required by the business.
- It is rented for business purposes.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below: