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Have Proof
Forman says another problem home business owners encounter is the percentage taken for the home office deduction. "You need to use the area exclusively for your business," she explains. (There are two key exceptions to this rule, however: if you store inventory, and if you run a daycare facility.)
Whether you rent or own, whether you use 10% or 50% of your home for your home-based business, it's a good idea to make a record of that usage. Forman strongly encourages her clients to take pictures. "Get a camera and photograph your office, your equipment, everything. That way, in the event of a fire or the sale of your home, you have proof that you really did use your home for business as much as you did." Forman says she even had one client open file drawers and take pictures of the files inside them.
Such a record might come in handy if you ever encounter an IRS audit. One of Forman's clients had taken pictures of his home office and then moved into a different home. An audit raised the question of the legitimacy of the home business expense. The client put together a slideshow, which satisfied the auditor.
In addition to photographing your home, maintain excellent home records. Keep a separate file noting what repairs you made and when you made them, explaining receipts, and so on. This file provides proof that will reinforce your home business deductions.