For cash-strapped startups, working from home allows small business owners to launch their entrepreneurial ventures without the upfront capital required for office space and overhead costs.
While this path can pose challenges, there are financial incentives, including the opportunity to qualify for benefits like the home office tax deduction. Our guide breaks down the ins and outs of the home office tax deduction, including who is eligible and how to calculate your home-based business tax break.
[How does the “One Big Beautiful Bill Act” impact your business taxes? Download the U.S. Chamber's small business tax guide here.]
What is the home office tax deduction, and who qualifies?
The home office deduction offers tax breaks to eligible workers who use a dedicated home office space solely for business. This deduction helps self-employed workers offset entrepreneurial costs; however, they must prove their space is used exclusively for work — any personal use disqualifies eligibility.
What qualifies as an eligible home office?
Workers can qualify for the home office tax deduction regardless of what their office space looks like, as long as it meets one of these two requirements:
- The space is regularly and exclusively used for business.
- The space functions as your principal place of business.
It’s important to note that you must be a registered business owner or independent contractor to take the home office deduction. You cannot take the home office deduction if you work from home as a W-2 employee of a business.
The 'exclusive use' test
To qualify for the home office deduction, your workspace must pass the IRS "exclusive use" test. This means a specific area of your home must be solely for carrying out your self-employed business activities.
If you use this space for personal tasks or your corporate W-2 employment, it immediately invalidates the deduction. The only exceptions to this rule are workspaces utilized for licensed daycare facilities or dedicated inventory storage.
[Read more: How to Start a Small Business at Home]
What can I deduct from my taxes as a home-based business?
The following list contains the most common deductions home-based business owners claim on their tax returns.
Home-related expenses
Home office-related deductions are based on the percentage of your home that you use for business.
If you meet IRS guidelines, you can deduct the following home-related expenses:
- Homeowners insurance.
- Homeowners' association fees.
- Cleaning services or cleaning supplies used in your business space.
- Mortgage insurance and interest.
- Utilities, including electricity, heat, phone, and internet service.
Repairs and maintenance
If you make home repairs or upgrades related directly to your business space, you may also deduct these expenses from your taxes. The amount you can write off depends on whether the expense is direct (it only benefits your home office) or indirect (it benefits your entire home).
- Direct: If you spend $100 to fix a window in your home office, you can deduct the full $100 on your taxes.
- Indirect: If you pay $1,000 to repair a leak in your roof, you may only deduct a percentage of that expense equivalent to the percentage of your home used for business.
Office tools and supplies
So long as they are used regularly and exclusively for business, long-term purchases like tech and furniture can be deducted as business expenses on your Schedule C tax form. Some examples include:
- Printers, scanners, and additional computer monitors.
- Office furniture, such as desks, chairs, and storage solutions.
- Video call accessories, including ring lights, headsets/microphones, and laptop stands.
Keep track of all of your business expenses and receipts to ensure you can prove your purchases in case you're audited.
Other business expenses
To qualify as a deductible, a business expense must be considered both ordinary and necessary, meaning the expense is common and helpful for your trade or industry. Costs such as employee salaries, business taxes, travel expenses, business insurance, professional services, marketing and advertising, and other similar expenses can be deducted on any home-based business tax return, regardless of whether you are eligible for the home office deduction. The IRS provides a detailed explanation of these types of expenses and what is eligible for deduction.
[Read more: What to Know About Taxes When You’re Running a Family Business]
The home office deduction offers tax breaks to eligible workers who use a dedicated home office space solely for business. This deduction helps self-employed workers offset entrepreneurial costs.
What expenses does the IRS disallow?
The IRS has strict guidelines as to what expenses are — and aren’t — deductible under the home office deduction. Some of those restrictions include:
- Initial telephone lines within the home: While in-home telephone lines have largely declined over the years, with less than 21% of adult Americans still using their landlines, the IRS does not allow a deduction for the first telephone line in one’s home, except in instances of long-distance business phone calls. Additional lines used exclusively for business may be covered.
- Lawn care and landscaping for non-business purposes: Unless your business specifically involves outdoor maintenance (such as landscaping services), you cannot deduct the cost of lawn care or landscaping under the home office tax deduction, even if the improvements are intended to enhance the experience for your clients.
- Home repairs and maintenance outside of the home office space. Only home improvement projects that directly benefit your home office space can be claimed in full.
How to calculate and take the home office deduction
There are two different methods you can use when calculating and determining home office deductions: the regular method and the simplified method.
- The simplified method. Those using the simplified method take the deduction directly on Schedule C when reporting the income and expenses for their business.
- The regular method. Those who calculate deductions using the regular method submit Form 8829 with their tax return. Afterward, they report the total deduction from the business income on Schedule C.
Here’s a breakdown of what each method entails.
The regular method
The regular method involves calculating the exact percentage of your home used for business by comparing your workspace square footage against the total household area. You then apply that ratio to indirect costs like rent, utilities, and insurance; according to the IRS, this also includes tracking depreciation and general home repairs. You can claim 100% of direct office expenses, and even carry forward unused deductions to future years if your business operates at a net loss.
The simplified option
The simplified option reduces the burden of tracking actual expenses by offering a flat rate. Under this approach, you can deduct $5 per square foot of your home office, up to a maximum of 300 square feet, making the top deduction $1,500. The catch is that while you skip tedious calculations like utility tracking and depreciation, you cannot carry forward any unused business losses to subsequent tax years under this streamlined framework.
Which calculation method is right for you?
Choosing the right approach depends on your living situation and your patience for paperwork. The simplified method is generally best if you rent a smaller space or want to avoid the administrative headache of saving every single utility bill and receipt.
Conversely, the regular method often yields a much larger write-off if you have high housing costs, a large dedicated workspace, or significant home maintenance expenses. Deciding between them comes down to balancing the time required for meticulous recordkeeping against the potential dollar savings.
Homeowners frequently benefit more from the regular calculation because it captures mortgage interest and property taxes, while renters with low monthly expenses usually prefer the simplified alternative.
Home office deduction FAQs
Navigating tax rules for a home workspace can feel confusing. These frequently asked questions break down the details to help you safely maximize your eligible deductions.
Can you claim a home office deduction as a work-from-home employee?
If you're a work-from-home employee, you cannot claim a home office deduction due to the Tax Cuts and Jobs Act of 2017. The tax break is only available to self-employed individuals, including freelancers, gig workers, and independent contractors. W-2 employees are not eligible, even if they work remotely for an employer.
There are exceptions, however. If you are both self-employed and employed separately as a W-2 employee, you may qualify, but only for the months when you earned self-employed income. To be eligible, this income must be reported on Schedule C.
Can you claim the deduction if you've been self-employed for a few months?
Even if you were only self-employed for a few months out of the year, you can still claim a partial home office tax deduction. Be sure to only use expenses for the months you were self-employed, or otherwise eligible, to calculate the deduction.
If an eligible taxpayer decides to use the simplified deduction method, they can use the number of months they worked from home to prorate the amount they can deduct. They can deduct a portion of actual expenses for the months they were eligible for the deduction.
Should you use a CPA for home office deductions?
Enlisting the help of a professional is always advisable when it comes to a complicated tax situation. While you may have a strong understanding of your business’s tax obligations, the rules change every year, which can make it hard to ensure your business is meeting the requirements, even with the best intentions.
Having a certified public accountant (CPA) prepare or review your tax filings can ensure you don’t take deductions you’re not qualified to take. This can help your business remain compliant and avoid unnecessary penalties — or worse, an audit, which can be resource-intensive for small businesses.
Will I get audited by the IRS if I take the home office deduction?
While the home office deduction used to be a major red flag, it is largely a myth today that claiming it guarantees an IRS audit. The IRS uses automated scanning software to flag returns that deviate significantly from average deductions for your specific industry and income level. As long as your workspace strictly meets the exclusive use rule and you maintain accurate measurements, you are on solid ground. Getting audited usually happens when you make math errors or claim a workspace that takes up an unrealistic percentage of your total home.
How to keep audit-proof records
Although recordkeeping requirements vary by industry, you’ll need to ensure you can produce accurate records in the event of an IRS audit. Inaccurate or incomplete records could lead to penalties.
Here are some best practices for maintaining audit-proof, IRS-compliant records:
- Maintain supporting business documents. An invoice or receipt must accompany any transaction your business completes to substantiate entries in your books and on your tax return. These documents must be kept for at least three years after filing a tax return.
- Keep records organized. Ensure you accurately record and categorize your transactions according to how the item was used. Incorrectly classifying your expenses could cause challenges for your business should the government not approve them.
- Log your business use of personal items. If you plan to take deductions like car usage or internet service, you must substantiate your business use percentage on your personal items. Keep accurate records with mileage logs that annotate the destination, business purpose, and mileage used. For internet or cell phone usage, you’ll need documents proving the time spent using the resource for personal versus business time.
- Use digital tools to store documents safely. It’s always best to have records safely stored in multiple places in case of an accident or hardware failure. Using digital tools can help you organize records easily and efficiently, ensuring documents are easily accessible when you need them.
- Maintain a recordkeeping schedule. Rather than waiting until tax time, set a recurring schedule for logging expenses, reconciling accounts, and updating key records. By making recordkeeping a consistent part of your business’s processes, you can guarantee that your documents are always backed up and ready when you need them.
- Separate personal and business finances. Open a dedicated business bank account right from the start rather than mixing personal income and business expenses. Blending your personal and business accounts is often viewed as an immediate red flag to the IRS during a review.
- Preserve physical receipts. Receipts printed on thermal paper often fade within months, rendering them unreadable for an audit. Protect your documentation by scanning or photocopying it immediately so you have legible copies ready.
- Group records by category. Avoid organizing your receipts chronologically by month or by payment method. Instead, file them by specific category, such as utilities or marketing expenses, to make them easier to track and verify.
[Read more: Ready. Set. Scale. Smart Tax Tips for a Stress-Free Filing]
Commonly overlooked tax deductions for home-based business owners
Beyond your dedicated workspace, deducting these everyday operational expenses can significantly reduce your tax burden:
- Health insurance premiums. Self-employed individuals can deduct 100% of medical and dental insurance premiums paid for themselves, their spouses, and their dependents.
- Retirement contributions. Setting up and funding a Solo 401(k) or SEP-IRA allows you to deduct substantial contributions, directly lowering your taxable income.
- Software and digital tools. Subscriptions for accounting software, creative platforms, or cloud storage used to run your daily operations are completely deductible.
- Advertising and promotion. Everyday marketing costs, including website hosting, social media ads, and business card printing, qualify as write-offs.
Beyond these write-offs, there are also small business tax credits that can directly reduce your final tax liability dollar-for-dollar.
Rachel Barton and Miranda Fraraccio contributed to this article.
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