When people ask, I tell them that one of my favorite things about being a freelancer is that I can work from anywhere as long as I have my computer, cell phone and an internet connection. However, most of my work is done from the comfort of my home office.

Each year when I prepare my taxes, I still get a bit nervous about taking the home office tax deduction. I'm confident that I'm entitled to it, and the IRS has never questioned whether I'm eligible for the deduction, but I've heard many vague threats, warnings and horror stories about home office deductions.

The week of Oct. 8 is Improve Your Home Office Week, so I decided to take a fresh look at the home office deduction to confirm that I'm both eligible for the tax deduction and that I'm maximizing the deduction.

The tax deduction for the business use of your home is often called the home office deduction. The deduction has different requirements for people who are self-employed and people who work for others. Nonetheless, the basic requirement is the same: To deduct expenses in connection with the business use of a home, the space must be used on an exclusive and regular basis for trade or business purposes.

This "exclusive test" looks at the use of a space during the entire day. For instance, even if you use a specific part of your home for business purposes from 9 am to 5 pm on Monday through Friday, but your child uses the space for doing homework in the evenings, then it's not being used exclusively for business. Similarly, it's not being used exclusively for business if you use the space to pay your personal bills in the evenings or the weekend.

To qualify for the deduction, part of your home must be used regularly and exclusively as:

• The principal place of business for your trade or business, such as if your self-employed
• The place where you meet and deal with patients, clients or customers in the normal course of your trade or business
• In connection with your trade or business, if you use a separate structure that is not attached to your home

In addition to those requirements, if you're an employee, you can take the deduction only if:

• Your business use is for the convenience of your employer, and
• You don't rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer

For example, if you are a teacher, you're required to teach at the school and to grade papers, and the school provides you an office to perform those duties. The school does not require you to work at home. Suppose, however, that you like to use an office you've set-up in your home and you use it for grading papers and making your lesson plans. You can't take the deduction because the business use of your home isn't for the school's convenience, since the school doesn't require you to work from home.

You can take the deduction if you use a separate, free-standing structure on your residential property. For example, if you're self-employed and you keep supplies or inventory in a detached garage, you can deduct the expenses of the garage, such as maintenance and even depreciation.

In general, you can only deduct the portion of expenses that apply specifically to your home office.

For example, suppose your home is 1,000 square feet and you use 100 square feet as your home office. You can take a deduction of 10% of your whole-house expenses (1,000 divided by 100). So, if your homeowner's insurance is $1,000, then $100 ($1,000 x 10%) can be deducted.

Some other examples of deductible expenses include:

• Depreciation and rent
• Mortgage interest
• Real estate taxes

If you're self-employed and you normally file Schedule C with Form 1040, you need to complete and attach Form 8829. Most employees have to itemize deductions on Schedule A with Form 1040 to claim a deduction for the business use of your home, along with other work-related expenses you may have.

Related Links:

• Learn more about tax issues and your small business on Lawyers.com
• Find an tax law attorney in your area
• Discuss your issues on the Lawyers.com business law forum
• Lawyers.com Suggested Legal Books

My time is valuable, and yours is, too. If you're like me, your free time is a valuable commodity to be treasured. When you're not working, you probably want to spend as much time doing the things you enjoy. You want to spend time with your family or your friends. Perhaps you like to golf or jog. Maybe you enjoy cooking at home, or like nothing more than exploring new restaurants. But life has a way of cutting into our leisure time. There are errands to run, bills to pay and a home to clean.

If you can afford it, you may decide to hire someone to handle many chores so you can enjoy more of your leisure time. (Or you may simply realize that you don't have enough free time to handle all of the chores in your day-to-day life.) That's when people hire outside help. Maybe you order groceries online and have them delivered to your home. Or maybe you hire a housekeeper, or a nanny.

This is National Housekeepers Week. Hiring a housekeeper can make your life easier, but it also means you're taking on certain obligations. You are now an employer, and may now be responsible for withholding or paying income tax, Social Security and Medicare taxes, and unemployment tax.

There are two main factors that determine whether you owe taxes for someone working in your home: How much are you paying them, and are they an employee or an independent contractor? I could write pages about the differences between employees and independent contractors, but in general, maids, housekeepers and nannies are almost always your employees. (The exception would be if the person actually works for an agency, you pay the agency and the agency pays the person.)

Employment Taxes Basics

As an employer, you may be responsible for:

• Withholding federal, state and local income taxes from your employee's wages. You'd withhold this tax from each paycheck, based upon the information on his W-4 Form, and submit the withheld money to the IRS. (You don't have to withhold income and FICA taxes from your household employee unless the employee requests withholding.)
• Withholding Social Security and Medicare taxes, also known as Federal Insurance Contributions Act (FICA) taxes, from your employee's wages, and matching your employee's share of FICA taxes. If you pay cash wages of at least $1,700 in 2009, all cash wages are FICA taxable. If you pay less than $1,700 in cash wages in 2009, neither you nor the worker owe FICA tax on any portion of those wages.
• Paying federal and state unemployment taxes if you paid total cash wages of $1,500 or more for all household employees in any calendar quarter of the current or preceding calendar year.

Reporting and Paying Taxes

If you withhold or pay FICA taxes or withhold federal income tax, you have to file Form W-2 and Form W-3, which relate to how much the worker was paid and how much tax you withheld.

When you file your 2009 federal income tax return, attach Schedule H, which is used to figure your total household employment taxes, and attach it to your Form 1040. You add these household employment taxes to your income tax, and pay any amount due by April 15, 2010.

If you employee a household worker and don't pay taxes before April 15, 2010, for the 2009 tax year, you'll have to pay a penalty for late taxes, in addition to paying the taxes that are overdue.

Related Links:

• Learn more about tax law on Lawyers.com
• Find a tax lawyer in your area
• Discuss your issues on the Lawyers.com business tax forum
• Lawyers.com Suggested Legal Books