Home Office

What is 'Home Office'

A home office is a space designated in a person's residence for official business purposes. The term can also be used to describe the administrative corporate headquarters of a large enterprise, such as the home office of a large corporation located in a particular city.

BREAKING DOWN 'Home Office'

Home offices are set up by people who work from home, whether they are self-employed or take part in telecommuting. A home office may also describe the headquarters of a large company.

The Rise of the Home Office

Home offices are now a big part of our everyday lives, as more people are working from home. Some may be self-employed, while others may work with a company that allows them to do their job without commuting to the office. 

With costs rising, many small businesses have become dependent on home office space. Renting and furnishing a professional office space has become costly, especially in large metropolitan areas like New York City, Chicago and Los Angeles. In order to cut down on costs, many entrepreneurs may choose to convert spaces in their own homes — a full room or a corner of their kitchens — into office space. And with the internet and other available resources, working from home as a self-employed or small business owner becomes much more affordable and a more viable option. For example, a caterer may choose to set up shop in her own home, rather than pay to rent a traditional office and other related equipment. She may have a separate office area in her home where she keeps files, client records and any other information related to her business. 

People who work in certain professional industries may also choose to set up home offices. These include consultants, lawyers, accountants and real estate agents. They may choose to use the space simply to work on their own or even meet with clients in their home office spaces. 

Similarly, the rise in telecommuting has also helped boost the popularity of the home office. Certain companies may offer employees the chance to work remotely from home (or other locations), saving both time and money.

Telecommuting: Working From Home

Many companies offer employees the benefit of telecommuting. Telecommuting has become popular in certain industries like media, human resources and recruiting, accounting, finance and real estate. This has become a big part of workplace culture, thank in part to the rapid development of computer technology and ready access to the internet. The rising cost of large office spaces has also contributed to the rise in telecommuting. 

Forbes presented research in 2013 saying that nearly 47 percent of people who were given the option to work from home were happy with their jobs, compared to only 27 percent of employees who worked in the office. Employers also reported an increase in productivity from those employees who telecommuted. 

According to CNN, telecommuting in the United States has increased at a rate of about 115 percent in the last decade. That means roughly 3.9 million people (or about 3 percent of the American workforce) worked from home at least half the time in 2015. 

Pros and Cons of Working From Home

Many people find working from a home office beneficial for a number of reasons. First, it cuts out the commute time, which can be frustrating, time consuming and costly. According to CNN, someone working from home full-time can save more than $4,000 annually in travel-related and other expenses. Second, it cuts down the need to dress up formally. And oftentimes, it allows the employee to manage work on her own schedule. All that means a better work-life balance, which can lead to an improvement in an employee's overall health and wellness. 

This also results in more cost savings to employers, whether that's in dollars or in productivity.  

Despite all the benefits, there may be some pitfalls to working from home. Being at home while being on the clock means having to distance yourself from your own personal space and all other distractions. Family, entertainment and other temptations can keep you away from doing your job.   

Home Office Tax Deduction

Anyone who uses part of their home for business purposes can deduct expenses related to that business through the home office tax deduction with the Internal Revenue Service (IRS). The home must be the principal place of business, so even if you do some business activity outside the home, it can still qualify. 

The IRS states that only the percentage of space used for business purposes in the home qualifies, so if you are using a room in your home, you must calculate the percentage (or square footage) of your home for any deductions. Qualified expenses include rent, mortgage, utilities, property taxes and other related expenses.