In this report, we discuss some of the details with a pair of tax professionals. But first, some broad strokes:

You probably can’t get away with it if your home isn’t your main workplace. So if you have an outside office where you see patients and do a lot of your paperwork, but sometimes do paperwork at home, too, that’s not going to fly.

If you do therapy at several locations, but do absolutely all of your paperwork at home, that’s OK.

The IRS has loosened up in one regard: In the past, to qualify for the deduction, you had to devote an entire room to office tasks. Now, it can be an area within a room--say, 100 square feet with a desk and file cabinets. But again, exclusivity is an issue--the area you call a home office must be used only for that purpose.

So how dangerous is it to take the home office deduction? Conventional wisdom is that it’s a red flag. And the IRS reports that among the nearly 20 million taxpayers who filed Schedule C (for sole proprietors) in 2003, only about 2.7 million claimed a home office deduction. So you do stand out.

But Jim Griggs, an enrolled agent who prepares taxes for mental health professionals in Dallas, says it’s not a home office, per se, that makes you vulnerable. He says just being self-employed can attract the IRS’ attention.

"The service has clamped down on what they call ‘small business self-employed,’" Griggs tells us. They’re looking at whether you have a small S-Corp, a small limited liability company (LLC), or a sole proprietorship.

1. The deduction you can take is based on the percentage of your home used for work. If you have a 1,500 square-foot home, and use a 150-square-foot area for work, you can deduct 10% of your utility bills, mortgage payments, property taxes, and insurance payments.

2. The number-one risk for any self-employed taxpayer is poor record-keeping. "Banks can reconstruct a lot, but you still should be keeping your bank statements," Griggs says.

3. Taking depreciation on your space is part-and-parcel of a home office deduction. This is counter-intuitive since the value of your home (usually) increases over time. But this is built into the system. Since depreciation reduces the "cost basis" of your home, you’ll have a larger profit when you sell your home--which may raise your tax bill.

4. If you are notified of an audit, don’t panic, but don’t take it casually. "You need a buffer," Griggs says. That is, a CPA, tax attorney, or enrolled agent, who can stop you from doing things you’ll regret.

Example: "It’s not impossible for the service to slide a piece of paper over to you and ask you to sign it, and you’ve just signed away the rights to an appeal," Griggs says. "People don’t realize that they are not required to talk to an IRS person or allow them in their home or business."

And it goes without saying--or should--that you need to seek professional tax advice before you make potentially problematic decisions, not after.

Contacts: 1) Jim Griggs, JCG Financial Services, 705 West Avenue B, Ste. 305, Garland, TX 75040, (972)487-1120, www. jcgfinancial.com; 2) Bill Rys, National Federation of Independent Business, Washington, DC, (202)554-9000, www.nfib.com.