Introduction

The IRS allows taxpayers who use part of a home regularly and exclusively for business to deduct related expenses, but those claims draw audit attention. Good documentation turns a home office deduction from a guess into verifiable tax law compliance. In my 15 years advising small-business owners and freelancers, I’ve seen the same theme: taxpayers who build a simple, consistent recordkeeping habit rarely lose deductions in an audit; those who reconstruct receipts after notice of audit often do.

Why documentation matters (brief legal context)

To claim the deduction, the IRS requires that the space be used “regularly and exclusively” for business and be your principal place of business or otherwise qualify under Publication 587. The IRS reviews both the nature of the space and whether expenses are properly allocated between personal and business use. See IRS Publication 587 (Business Use of Your Home) and the IRS guidance on the home office deduction for authoritative rules (IRS Home Office Deduction).

Primary record categories you must keep

1) Space measurements and floor plan

  • Exact square footage of the home and of the area used for business. Measure interior dimensions (length × width) and document how you calculated the percentage used for business. Save a dated floor plan or photo that shows the office area.
  • Why: The business-use percentage underlies every prorated expense (utilities, mortgage interest, insurance, depreciation).

2) Expense receipts and bills

  • Mortgage interest (Form 1098), rent statements, property tax bills, homeowners insurance, HOA dues, utility bills (electric, gas, water), internet and phone bills, and receipts for repairs and improvements. Keep invoices, canceled checks, and credit-card statements that show business-related payments.
  • Why: These substantiate the amount you prorated to the business portion.

3) Depreciation and basis records

  • Records that support depreciation claimed on the home office (if you use the regular method), including closing statements, records of capital improvements, depreciation schedules, and prior-year Form 8829 entries. Keep those until the statute of limitations expires for the year you dispose of the property.
  • Why: Depreciation affects basis when you sell the home and can trigger recapture rules.

4) Time and activity logs

  • Contemporaneous records showing when the space was used for business: client meetings, hours worked, teleconferences, and business-related events. This can be a calendar export, dated appointment notes, or a spreadsheet log with brief activity descriptions.
  • Why: Demonstrates the “regular” use requirement and helps rebut claims the space is incidental.

5) Client contracts, invoices, and receipts

  • Contracts naming your business address (if you use home address), client invoices showing services provided from the home office, and bank deposits or merchant-account records that link revenue to the business.
  • Why: Connects income generation to the claimed business location.

6) Business entity and licensing records

  • Business registration, DBA (doing-business-as) filings, local business licenses, and home-based business permits where applicable.
  • Why: Supports that the home is a legitimate business location.

7) Photographic evidence and contemporaneous notes

  • Photos of the space showing it set up for business (desk, shelving for inventory, business equipment). Date the files (digital EXIF timestamps are useful) or include a dated log entry referencing the photo.

8) Bank and credit-card statements

  • Separate business bank accounts and credit cards make substantiation easier. Statements showing business purchases tied to the home office are especially helpful.

9) Payroll and contractor records (if you have employees)

  • Timecards, payroll tax filings, and Form 941/940 records corroborate that the home was used for employer-related activity.

10) Tax forms and prior-year returns

  • Schedule C and Form 8829 (Expenses for Business Use of Your Home) for sole proprietors; partnership or corporation records showing home-based business activities where relevant. Keep copies of returns and worksheets used to calculate the deduction.

How to organize records (practical systems)

  • Use digital folders with a consistent naming convention: YYYY-MM-DDvendororbilltypedescription (e.g., 2024-03-10ConEdElectricity_March2024). Back up in two places (local and cloud).
  • Maintain a single spreadsheet that summarizes each expense category for the year with links to receipts. Include a column for the business-use percentage and the prorated amount claimed.
  • For time logs, export calendar data monthly to a CSV and store a short activity note for each day you claim business-only use.
  • Use accounting software (QuickBooks, FreshBooks, Wave) to track income and expenses and produce reports for an auditor.

Sample documentation checklist for an IRS audit

  • Floor plan with measurements and calculation of business percentage
  • Photos of the workspace (dated)
  • Mortgage interest Form 1098 and property tax bills
  • Lease statements (for renters) and a copy of the lease agreement
  • Utility bills (electric, gas, water, internet) and credit-card/bank statements
  • Receipts/invoices for repairs, supplies, furniture, and equipment
  • Depreciation schedule and records of capital improvements
  • Time or activity log showing regular business use
  • Client contracts, invoices, and business deposit records
  • Business registration and licenses
  • Copies of Schedule C and Form 8829 from recent returns

Common audit red flags and how to reduce risk

  • Vague or reconstructed records: Keep contemporaneous receipts and logs rather than rebuilding records after an audit notice.
  • Shared-use spaces: If an area serves both personal and business purposes, don’t claim exclusive-use unless you can prove exclusivity.
  • Inflated square footage: Measure carefully and retain supporting photos/floor plans.
  • No business bank account: Using the same personal accounts for business makes it harder to substantiate expenses—separate accounts when possible.

Responding to an audit: a practical sequence

  1. Read the IRS notice carefully and note requested documents and deadlines.
  2. Assemble the checklist above and make digital copies (PDFs). Label files clearly.
  3. Provide organized folders in the order the IRS requested; include a short cover letter summarizing the documentation and pointing to the calculation of the deduction (e.g., business square footage × total home expenses).
  4. If you used the simplified method, supply a floor plan and square footage calculation along with proof of business activity; the simplified method doesn’t require prorating specific expenses.
  5. If you’re unsure, consult a CPA or tax attorney before submitting documents. The Office of Appeals has procedures if you disagree with audit findings (see FinHelp’s guide on tax audits and appeals).

Record retention timing (practical guidance)

  • Keep records for at least three years from the date you filed the return. This is generally the statute of limitations for audits.
  • If you omitted income of more than 25% on a return, keep records for six years. If you claimed depreciation, retain records until the statute of limitations expires for the year the property is sold.
  • When in doubt, keep records longer—digital storage makes long-term retention inexpensive. See the IRS recordkeeping guidance for details.

Tools and templates I recommend

  • Spreadsheet template for expense proration (columns for category, total amount, business percentage, prorated amount).
  • Time-log template (date, start/end time, client or task, brief description).
  • Cloud storage (Google Drive, Dropbox) with two-factor authentication and an offline local backup.

Links and further reading

Professional note from the author

In my practice advising small-business owners and freelancers, clients who develop three simple habits—measure once, save receipts in a single organized folder, and keep a short contemporaneous time log—avoid nearly all disputes over the home office deduction. Documentation doesn’t need to be elaborate; it needs to be consistent and contemporaneous.

Disclaimer

This article is educational and does not constitute personalized tax advice. For advice tailored to your situation, consult a CPA, enrolled agent, or tax attorney. Tax laws change; verify the current rules and forms before filing.