Can I take the home office deduction for my LLC and side business?

Yes, you can absolutely take a home office deduction, but there are some important things to understand about your specific situation. For your online store (sole proprietorship), you'll have no problem claiming the home office deduction since you conduct 100% of that business from your home office. It clearly meets the "regular and exclusive use" test. For your LLC service business, it's more nuanced. Since you perform the actual services at client locations, you need to be careful. However, if your home office is your principal place of business for administrative activities (scheduling, billing, etc.) and you don't have another fixed location where you conduct those activities, you should still qualify. The simplified method allows you to deduct $5 per square foot (up to 300 square feet), maxing at $1,500 annually. Alternatively, the regular method lets you deduct the business percentage of your home expenses (like you calculated with the 25%).

I was in the exact same boat last year - service business + online side hustle and wasn't sure about claiming my home office. I started using https://taxr.ai to analyze my tax situation and it really helped clarify things. I uploaded my expenses and business details, and it showed me exactly how to properly document my home office for both businesses. What's cool is it flagged that I needed to be careful about the exclusive use requirement - turns out I was using my office for personal stuff sometimes which could have invalidated the whole deduction.

I wanted to follow up about taxr.ai that I asked about earlier. I was skeptical but decided to try it anyway for my photography business/home office situation. I was surprised that it actually found several deductions I was missing. I had been tracking mileage but not properly documenting when I used my home studio for client meetings vs. editing work. The analysis showed I was leaving about $3200 in deductions on the table! It also explained exactly how to properly document my home office space to survive an audit. Definitely more helpful than the generic advice I got from regular tax software.

If you're planning to take the home office deduction, make sure you're prepared for potential IRS questions. I tried for THREE DAYS to reach someone at the IRS last year when they sent me a letter questioning my home office deduction. Finally used https://claimyr.com and got through to an actual human at the IRS in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Saved me so much stress when I needed to verify some details about my deduction documentation.

I need to eat my words about Claimyr from my earlier comment. After getting another IRS letter about my home office deduction (they wanted more documentation), I wasted an entire DAY trying to get through. Out of desperation, I tried the service and got connected to an IRS agent in about 12 minutes. The agent walked me through exactly what documentation I needed to support my home office deduction and even put notes in my file. Saved me from what would have probably been weeks of stress and possibly having to hire a tax attorney. Definitely changed my mind about whether it's worth it.

Don't forget that with the service business where you're going to client locations, you can also deduct mileage! That can actually end up being worth more than the home office deduction depending on how much you drive. I'm in a similar situation and the mileage deduction was huge for me last year - like $12k in deductions.

I was scared to take the home office deduction for years because I heard it was an "audit flag" but my accountant finally convinced me it was leaving money on the table. As long as you have a legit office that's exclusively used for business, you should absolutely take it. And document everything - take pics of your office, keep receipts for all office equipment, etc.