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Taking the Simplified Home Office Tax Deduction in 2023

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Taking the Simplified Home Office Tax Deduction in 2023

The pandemic caused millions of people to work from home, but long before the lockdown, there were many professionals who had been working from home, including self-employed individuals, freelancers and independent contractors, also known as 1099 employees. Unlike full-time W-2 employees, whose employers automatically deduct taxes from their wages, these self-employed individuals are responsible for their own taxes. When you're self-employed, you're in charge of finding work, setting up income streams from multiple sources, working on daily tasks and estimating your self-employment tax. If your taxes are atleast $1,000, you have to make quarterly tax payments to the IRS. Working as a self-employed individual comes with a lot of work-related expenses, and you can write off most of them to lower taxable income when paying 1099 employee taxes. The home office deduction is one of the write-offs that can help lower your taxable income the most.

Key takeaways:

  • There are two different methods of calculating the home office deduction.
  • The simplified method is based on the square footage you use for your office.
  • The actual expense method factors in square footage and other home office expenses.

Table of contents

Who's eligible for a home office tax deduction in 2023?...Read more

How to calculate your home office deduction?...Read more

Different methods to calculate home office deductions...Read more

What's the regular method of calculating home office deductions?...Read more

The simplified method for calculating the home office deduction...Read more

Who's eligible for a home office tax deduction in 2023?

Any self-employed individual is eligible for the deduction if they use a part of their home as office space. Most people think claiming the home office deduction leads to an audit risk. That's just a myth. As long as you provide relevant proof, the IRS won't have any problems. According to the Internal Revenue Service (IRS), a self-employed person can have multiple business ventures but can only use one home office space to do the work. This means that you can be a freelance social media marketer, an artist and a cake maker, but the area you use for work needs to be in the same building. Or, if you are a dentist and you run a clinic from your home, you probably have a waiting area and a separate place to see your patients in the same building. If the waiting area is adjacent to your home, you won't be able to claim the expenses related to that area as a home office deduction in 2023. If you own your home, you can't write off your mortgage as a deduction but you can write off the mortgage interest. You also can't use your home office for anything other than the trade or businesses that you have already declared with the IRS.
Image showing examples of professions that can use a home office, including doctor, make-up artist, digital marketer, executive, barber, and writer. No mention of self-employment, 1099, freelancer, or taxes.

How to calculate your home office deduction?

The most important thing to know about the home office deduction is the square footage of the area you use for work in your home. This can be a home you own or rent. To find your home office deductions for 2023, you can use a home office deduction calculator. But first, you'll have to know how to qualify for home office deductions. Let's say that you own a home and use 20% of the area for your office work. Your qualifying expenses for home office deduction will be proportional to the home office area. In a rented apartment, the amount of rent you pay becomes part of the equation. Let’s say you use 15% of an area as a home office in a rented apartment. You pay $1,100 in rent and $290 for utilities, which makes your monthly home expense $1,400. At 15% percent usage, you can claim $210 each month for a total of $2,520 for the year.
Image explaining the calculation method for home office deduction. Includes total home expenses, area percentage, and actual deduction. Relevant for self-employed, 1099, and freelancers for taxes.

Different methods to calculate home office deductions

The two different methods to calculate your home office deduction 2023 are the actual expenses method and the simplified deduction method. If you choose the actual expense method, you’ll need to consider the exact square footage used for your business in the home office. With the standard simplified method, you can only claim a home office deduction on pre-set square footage limits.

What's the regular method of calculating home office deductions?

This method includes your actual home office expenses. If you choose this option, you'll need to consider all your home expenses like electricity, water and internet bills, and any expenses from home repairs. You'll then have to find the percentage of space you use for your home office and multiply that number by the total amount of expenses related to your home. Let's say your utility bills and repairs cost $5,600 for the year, and 40% of your home's space is your office. Your home office expenses by percentage would be $2,240. This method is the right choice when you think your expenses will exceed the amount offered in the standard home office simplified method.

The simplified method for calculating the home office deduction

The home office simplified tax method, also known as the standard home office deduction, is a standard rate set by the IRS. You still have to calculate the home office's square footage, but you can't factor in your utility bills or home office repairs, which makes the home office simplified deduction less flexible. But the deduction amount may be bigger this way. It all depends on your specific situation. The IRS set the standard deduction amount for every square foot of home office space to $5 in 2023. The limit that the IRS places on the number of square feet that can be claimed as space for the home office simplified method is 300. This makes $1,500 the max for a home office tax deduction in 2023.
Fly Fin's simplified home office deduction limit is 300 sq. ft. with a max claim of $1,500. Ideal for self-employed, 1099, and freelance workers. Taxes made easy.
If you choose the actual home office deduction method for a 250-square-foot office in your 1,000-square-foot house, you can deduct 24% of your home office expenses from your taxes. If your home expenses total $4,200 for the year, including utility bills and routine maintenance, you can deduct 25% of them, or $1,050. If you use the simplified tax method, you'll have to multiply the square footage used for the office by $5, which brings your total home office deduction to $1,250. Clearly, the simplified method saves you more. Choosing the simplified method to claim the home office tax deduction is an easy way for self-employed individuals to save money on their tax bill. You can also claim the standard or itemized deduction when paying federal taxes to save more money. You can always reach out to an expert tax professional if you feel like you need more guidance.

Depreciation Tax Deduction

The depreciation tax deduction can be claimed for any asset that is used for business. There are three methods to calculate this deduction.

Education Expenses Tax Deductible

Education expenses are tax-deductible for self-employed individuals as long as they are related to their current job. Report the deductions on Schedule C.

Internet Bill Tax Deduction

For many who work from home, the internet is necessary for doing business. For some people, their internet bill counts as a tax write-off.

Write Off Your Car Payments

There are many tax deductions you can take related to your car, if you use it for work, but unfortunately your car loan payment isn't one of them.

Home Office Deduction

How the home office deduction saves self-employed individuals and freelancers on their taxes.

Home Improvement Deduction

What qualifies as a home improvement tax deduction and how homeowners who are self-employed or freelancers can benefit most.

Travel Expense Deduction

If you travel for work as a freelancer, there are a number of travel expenses you can claim as tax deductions in 2023 – find the details here.

Food and Entertainment Deduction

For 2023, you can deduct 50% of the cost of business meals as tax deductible – but not every meal can be deducted. This is relevant to self-employed people.

Car depreciation tax

Here's how to take advantage of depreciation, one of the biggest tax deductions people who use their car for work can take.

Car tax write off

Many freelancers drive their own vehicle for business and may qualify for certain car and mileage tax deductions.

Moving expenses deduction

Until recently, you could deduct moving expenses on your tax return. Recent changes to the tax rules have impacted whether you can deduct moving expenses.

Rent Tax Deduction

If you're self-employed, there are few ways you can write off your rent, and if you know how to use them, they can be among the most important ways to save money on taxes each year.

Side Hustle Taxes

Self-employed individuals can write off business expenses when filing side hustle taxes. You can avoid paying taxes on side jobs if your net income is under $400 in a year.

Mileage Tax Deduction

Get a car mileage tax deduction using either the standard mileage deduction or actual expenses deduction. You will report this on Schedule C.

Cell Phone Tax Deduction

A cell phone tax deduction is available to self-employed individuals if it is used for their business. They can also write off their internet usage.

Business And Consultant Tax Deduction

Consultant tax write-offs are useful in lowering self-employment taxes. Sole proprietors can use a QBID to lower taxable income, as they are a pass-through business entity.

Is Credit Card Interest Tax Deductible?

Credit card interest is tax-deductible if it is from a business-related purchase. You can write off a portion of the interest even on a personal credit card if it comes from a business expense.

Are Office Expenses Deductible?

The home office tax deduction is used to write off your home office and office-related expenses. Claim it using the standard or simplified method.

Advertising And Marketing Expenses Deduction

Marketing tax deductions related to promoting a business can be claimed by self-employed individuals. Report them on Schedule C.

Business Startup Costs and Deductions

Business startup costs can be amortized over 15 years. You can also deduct up to $5,000 in the first year if total costs are below $50,000.

Vehicle Write Off For Business

Vehicles used for business can be a tax write-off in 2023. You can claim this deduction even if you lease your vehicle under the actual expenses method.

Are Subscriptions Tax Deductible?

Subscriptions are tax deductible for self-employed individuals. You can write off the business use percentage as a tax deduction on Schedule C.

Depreciation Tax Deduction

The depreciation tax deduction can be claimed for any asset that is used for business. There are three methods to calculate this deduction.

Education Expenses Tax Deductible

Education expenses are tax-deductible for self-employed individuals as long as they are related to their current job. Report the deductions on Schedule C.

Internet Bill Tax Deduction

For many who work from home, the internet is necessary for doing business. For some people, their internet bill counts as a tax write-off.

Write Off Your Car Payments

There are many tax deductions you can take related to your car, if you use it for work, but unfortunately your car loan payment isn't one of them.

What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. It offers a host of cutting-edge tax tools that help you quickly find deductions. You can also use tools like a home office deduction calculator. FlyFin uses an A.I. to track all your business expenses automatically and find every possible tax deduction. Once you have all your possible deductions in one place, our CPA team files a guaranteed 100% accurate tax return for you. It saves you a couple of thousand dollars and a ton of time on your taxes. Download the app and have your taxes filed in minutes, saving time and more money on your taxes than last year, guaranteed.
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