If you have a home-based business, it’s important that you have a place in your home that you can use as your home office. Ideally, you should allocate an entire room of your home to your business office. In most cases, if you use this room exclusively for your business, you’ll be able to deduct a certain portion of your mortgage payments (or even in some cases, rent) from your federal (US) taxable income. These deductions are usually based on square footage.
More importantly, the office space provides a bounded space in your home that if set up properly, will make it feel like you really ARE running your own business. If you can’t spare an entire room or you live in a small place, such as a one-bedroom apartment, you can still make an office. Use a room divider to partition off part of a room so that, while small, it will feel like a separate place.
It doesn’t have to be anything elaborate; a simple office setup will do. The space should include a computer with internet access (I’m assuming some sort of web-based business here), a printer, and some room for files.
However you set it up, a home office will help you mentally separate your work activities from your home activities. When you are working from home, this separation is important for the sake of your sanity, your family, and your productivity.