If you look at the IRS rules for deductibility on a home office, they are pretty strict. It needs to be a physically defined area that is used only for work. If you use the same area as living space, or use the same desk and computer for personal stuff, it's not deductible. If you work off of a laptop, sometimes sitting on the couch, sometimes at the kitchen table, it's not deductible. I don't know if California law is more relaxed, but if it is, then I would think that any expense reimbursements would be taxable income at the federal level.
None of this is easily verifiable. Are the tax agencies going to install cameras in your office and monitor your internet traffic to verify compliance?
Not recommending tax fraud, but as a practical matter, these are non-issues.
