Work For Yourself? Don’t Miss Out On Claiming This Tax Deduction

Many remote employees won’t be able to to deduct their home office expenses this tax season, but self-employed workers still can. 

In 2018, the Tax Cuts and Jobs Act broadly eliminated the ability for remote employees to deduct home office expenses. However, those who are fully self-employed, have a side business, or are freelancers whose primary place of business is at home can still claim expenses from their home office.

What Can You Claim?

Only home offices that are “ordinary and necessary” for the business can be utilized while filing your taxes, said Crystal Stranger, an enrolled agent and chief executive officer of Optic Tax. In addition, the area must be utilized “exclusively and regularly” for business. This means that it cannot double as a craft room or guest bedroom, although individuals can put up a divider to separate a room.

Stranger recommends taking pictures or finding a blueprint of your home, which shows the space designated as the home office.

“From my experience, it often is two or three years later that people will get audited,” Stranger said. “When the IRS comes and questions [you], if you’ve moved, you may not be able any longer to substantiate that was really an office space.”

Self-employed individuals can use the actual expense method to deduct indirect expenses that help maintain the home. However, self-employees can only deduct a percentage of these indirect expenses, which directly correlates to the square footage of their office compared to the total square feet of the home. For example, if their home office takes up one-tenth of their home, they can deduct 10% of the mortgage payment and 10% of the electricity costs.

Self-employees can also deduct direct expenses such as a computer monitor or a renovation for the home office, said Stephen Fishman, attorney and author of “Home Business Tax Deductions.” However, these expenses must be solely for the office (a.k.a. planting some bushes outside likely cannot be deducted), and the total expenses deducted cannot exceed the company’s profit.

There is also a simplified home office deduction, where a self-employed individual can deduct $5 per square foot of their office for up to $1,500. This typically results in a smaller deduction but can be utilized if the individual wants a simpler route and did not buy many home office additions that year, said Fishman.