Claiming a home office deduction might sound complicated, but it doesn’t have to be. If you work from home and run your own business, there is a real chance you could lower your tax bill by claiming certain home-related expenses. The key is knowing the rules, understanding what qualifies, and keeping accurate records.
This article is here to walk you through it all; whether you are a sole proprietor, part of a partnership, or running an S-Corp. You will get clarity on eligibility, deduction methods, and a breakdown by business type.
Do I qualify for a home office deduction?
To claim the deduction, your home office must meet two main conditions.
First, you must use the space exclusively and regularly for business. That means a designated area used only for work, not a shared kitchen counter or your bed with a laptop.
Second, your home office must be your principal place of business. If most of your administrative or management tasks happen there, you probably qualify.
However, there are exceptions. Even if your home isn’t your main business location, you may still qualify if:
- You regularly meet with clients, customers, or patients in your home office; OR
- You use part of your home exclusively for inventory storage or product samples, or operate a qualified daycare
These exceptions are especially useful for self-employed professionals who do much of their work elsewhere but still use their home for essential business functions.
This applies to:
- Sole proprietors and independent contractors filing with Schedule C
- Partners with unreimbursed expenses and a qualified arrangement
- S-Corp owners with accountable plans and reimbursements
| Remote W-2 employees usually cannot claim this deduction on federal returns. However, some states allow deductions, so it is worth checking your state’s tax laws. |
What expenses can I deduct?
Deductible expenses fall into two categories:
- Direct expenses: These apply only to your office. Examples include painting your office walls or replacing a window in your office. You can deduct these costs in full.
- Indirect expenses: These include shared costs like rent, utilities, and insurance. You deduct a percentage based on how much of your home is used for business.
How do I calculate the business-use percentage?
There are two ways:
- By square footage: Divide the size of your office by the total square footage of your home
- By number of rooms: If your home has ten equally sized rooms and you use one for business, your deduction would be ten percent
Phone, Internet, and Tech
If you have a separate phone line or internet account for your business, you can deduct the full cost.
If you use one account for both personal and business, you can deduct a portion based on your business use. For example, if sixty percent of your internet use is work-related, you can deduct sixty percent of the cost.
Equipment, Supplies, and Repairs
You can deduct the cost of desks, chairs, printers, computers, and other necessary office items. You can either deduct the full cost upfront using Section 179 or depreciate them over time.
Supplies like paper, ink, and pens are fully deductible in the year purchased.
Repairs specific to the home office are fully deductible. Shared repairs, like fixing the HVAC system, are deductible based on your business-use percentage.
Should I use the actual or simplified method?
The IRS offers two options:
- Actual expense method: You track all relevant expenses and multiply them by your business-use percentage
- Simplified method: You deduct five dollars per square foot, up to a maximum of three hundred square feet or one thousand five hundred dollars
The simplified method is easier, but the actual expense method may give you a larger deduction if your office is large or costs are high.
How do the rules differ by business type?
Different entities and tax structures are impacted by these deductions in different ways.
Schedule C (Sole Proprietors and Independent Contractors)
You report income and expenses on Schedule C and use Form 8829 for the home office deduction if using the actual expense method. You can choose either deduction method.
Partnerships
Partners cannot deduct home office expenses on their personal returns unless they have an agreement with the partnership to cover those costs and the expenses are unreimbursed. These expenses are listed on Schedule E and require detailed backup.
S-Corporations
You cannot deduct home office expenses directly on your personal return. Instead, set up an accountable plan. This allows the S-Corp to reimburse you for home office expenses and deduct those costs as a business expense. You will need to submit an expense report with receipts and documentation. The reimbursements are not considered taxable income.
How Do Accountable Plans Work?
An accountable plan is a formal system where employees or owners are reimbursed for business expenses. To qualify:
- The expense must have a business purpose
- The employee must submit receipts and documentation
- Any excess reimbursement must be returned
For S-Corps, this allows the business to deduct home office costs while keeping them off the owner’s personal return. Without an accountable plan, reimbursements are taxable.
How do I stay organized and ready for tax time?
Keep detailed records, including:
- Receipts for repairs and equipment
- Utility bills
- Notes or drawings of your office layout
- Your square footage calculations
- Time logs for shared services like internet
If you are using the actual expense method, you must also file Form 8829. For S-Corps, keep copies of all reimbursements and documentation tied to the accountable plan.
Avoid these common pitfalls:
- Claiming non-exclusive space like a shared living room
- Using rough estimates without documentation
- Assuming you qualify without checking your business structure
The Bottom Line
If you are self-employed and meet the requirements, home office deductions can offer meaningful tax savings. Just be sure you qualify, keep solid records, and choose the method that gives you the best result.
Compare your options. Use the simplified method if it works best for your situation. Set up an accountable plan if you run an S-Corp. Check your state’s rules too.
The home office deduction is one of the most misunderstood tools in the tax code, but it does not have to be. With a bit of planning, your home workspace can work for you at tax time.
