If you have a business, office rent for operating that business can be deducted as a business expense against the income. If you rent an office as an employee who receives a W-2, this would not be deductible.
There are three common tests for deductibility of business expenses:
- Ordinary and Necessary - The expense must be ordinary and necessary. Generally, this means that the expense is commonly found in the specific business, and is helpful and appropriate in running the business.
- Business Purpose - Expenses must have a legitimate business purpose to be considered deductible.
- Reasonableness - The tax law requires that the deductions be reasonable to be deducted.
The resources below are useful for understanding common business deductions.
Taking Business Tax Deductions
What self-employed expenses can I deduct?
Business Use of Vehicles
The Home Office Deduction
IRS Publication 535
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