>Carefully look at IRS regulations about home office (a big flag for IRS audit).

There's another big "gotcha" with home offices that people don't know about until it's too late. Over the years, you get to write off depreciation and other expenses for a portion of the home. Say it's 1/10 of your house. That's great for the 20 years you are in business. However, when you sell the house you get nailed. Typically you don't have to pay taxes on profits made from your primary residence. However, if you deducted for a home office while you owned the house, you have to pay taxes on that portion of the sale .. meaning 1/10 in this case.

I did the math on a house I had owned and took the home office deduction. In the end, the entire thing was a wash by the time I was done paying taxes when the house sold. It wasn't worth the aggrevation of the record keeping or the risk of the IRS red flag!!