If you're a freelancer or self-employed person working out of your home office, you know there's truly nothing like working from home. And one of the greatest perks of being a work-from-home freelancer is the home office deductions you can claim when you file your 1099 tax. If your taxes are over $1,000 use an estimated tax calculator to pay quarterly taxes. COVID-19 changed the world in many ways, the main one being the rise of working from home. The change left many people wondering whether working from home is tax deductible. But with so many new freelance workers entering the workforce, and so many more people setting up home offices, the conversation about how this affects your taxes is even more important. There is a lot of useful information in this complete guide on tax deductions for freelance and start-up businesses, but it's worth looking specifically at home office deductions, because there's a lot of opportunity to save on taxes.

Image showcasing examples of self-employed individuals and freelancers who use their home offices, including artists, musicians, business coaches, dancers, gamers, and therapists. No mention of 1099 or taxes.

Table of contents

Do you qualify for home office deductions?...Read more

How to know if you qualify for the home office tax deduction...Read more

Exceptions to the IRS home office deduction rules...Read more

What to deduct: standard vs. simple option...Read more

Other deductions for self-employed individuals...Read more

Do you qualify for home office deductions?

There are probably a lot more business uses for an area of your home than you would expect, and if you use the space in the right way, it can help you pay less at tax time. People working in the arts who practice or rehearse in their home can take the deduction for work from home. Musicians, ceramicists and other artists who give lessons in their home studios can take the deduction for that business use of home as an office space, too. The same goes for hairstylists, massage therapists, online teachers and doctors providing consultations online. Digital personal assistant services have become a rising trend in recent years, and so have professional gamers who offer subscribers access to their streamed gaming sessions. In addition to the freelance writers, graphic designers and online sellers we're familiar with, these kinds of work from office space all qualify for a tax deduction.

How to know if you qualify for the home office tax deduction

Guidelines for home office tax deduction - exclusive and regular use, principal place of business, only used for work. Relevant for self-employed, 1099, and freelancers for taxes.

The IRS is pretty clear about what qualifies as a home office tax deduction, and that makes some freelancers feel that these deductions might be an audit risk. But as long as your use of your home office fits the following criteria, you're in the clear. A designated area of your home needs to be exclusively and regularly used as an office, and it should be your principal place of business. To clarify, the office in your home needs to be a space you use for your work, and your work alone. It could be a second bedroom, a corner of your living room with a desk, even a closet. But you can't use that space for anything else. If you sleep, cook breakfast or brush your teeth in the same place where you sit down to work every day, that area can't be considered an office – and it can't be tax write-offs for working from home. Also, if this is just one of the places you do work for your business, in addition to the co-working space downtown or the coffee shop down the street, it won’t qualify for the deduction for work from home. You also can't write off your mortgage if you have a home office. On the other hand, the business use percentage of your mortgage interest is tax-deductible.

What does the IRS mean by "exclusive use"?

If you work all day long every day in what you consider to be an office space, but your air hockey table is in the same room, or your kids watch movies in there, because your computer has the best screen, the IRS won't allow it to be considered a work from home office. Fortunately, they're not too picky about how it's set up. You can even use a free-standing room separator to put a barrier between your workspace and living space. Some IRS auditors are more strict than others when it comes to this stuff, but most tax experts offer a general rule of thumb: freelancers shouldn't use their home offices for anything that you wouldn't do if you were working in an office building.

"Regular use" can mean many things

Number of office hours for work from home The IRS doesn't give a specific number of hours or days you need to work from home for it to be considered regular use. If you work 3 hours a day, every day, in your home, that could qualify as regular office hours. Every case where the IRS challenges a taxpayer to prove they are using a space as a home office is different. Some vs. all your work at your home You don't have to do all the work for your business at your home. If you're an electrician, or you're running a catering company, much of your work will of course be done on-site with clients. But to qualify for the deduction, you have to do all the administrative and management office work for your business from your home. Home office for side-gigs Even if you have a full-time W-2 job in an office building, and you've got a side business where you do the work from home, you can still be eligible for work from home business tax deductions, as long as your home office fits the IRS' regular and exclusive use criteria.

Image explaining what the IRS considers a home office for tax purposes. Criteria include exclusive use for work, regular use, and being the only place of business. Relevant for self-employed, freelancers, and those with 1099 income.

Exceptions to the IRS home office deduction rules

There are some kinds of businesses that need to use the entire house, or more than one specific area, to be able to provide the services their clients need. The IRS understands that and allows those businesses to claim the work from home business tax deductions.

Daycare providers

It's actually not only daycare providers that can qualify for a write-off if they provide care for others in their home. If you run a care service out of your home for people with developmental disabilities, older adults or another vulnerable population, you can write off costs associated with the space in your home that you use to provide that care, even if you use it for your own needs outside of work hours. Requirements to qualify for deductions

Care is provided between 7am and 6pm each day
You have the right state licenses to be able to provide that care legally

Home storage

If your business is selling a product, and you store samples of that product, or you store inventory for sale in an area of your home, a portion of that storage space is eligible for work from home tax deductions. Requirements to qualify for deductions

Your business selling a product also has to be run out of your home and not from a retail space
You need to use that space regularly to store samples or inventory

What to deduct: standard vs. simple option

Work from home tax deductions can be one of the most important ways for self-employed people and freelancers to minimize the amount they pay in taxes. That's why it's essential to know how to do the math and figure out how much you can write off. For that, there are two options.

Option 1: standard

Until 2013, this was the only option, where you can deduct 100% of some expenses and a percentage of other expenses related to your office at your residence. For instance, if you add blinds to the windows or you fix the electrical outlets in your home that you use as an office, you can write off the entire cost. You can also write off a percentage of other office expenses like rent, internet and electricity, based on how much office space you use in your home. If you use 10% of the total square footage of your home as an office or studio space, for example, you can deduct 10% of your water and gas bills from your taxes. To do the math for this, you need to know how many square feet your home or apartment has in total.

Image showing how to calculate home office deduction for taxes. Percentage of home used as office = percentage of deductions. Includes electric and internet bills.

Option 2: simplified

To give taxpayers an alternative to keeping records of every single expense, in 2013 the IRS began offering freelancers a simpler way to calculate what they can deduct for their home office expenses. As long as your home qualifies for the deduction, you can write off $5 for every square foot of office space you use. This is allowed up to 300 square feet, or up to $1,500. Pros and cons If you use the simplified option, you can report it directly on your IRS Form 1040. For the standard option, you'll need an extra form, the 8829. You'll follow the instructions on 8829 to figure out your total deduction from your income and then report that on your 1040. The standard option has a major benefit for freelancers who might have paid more in tax deductible work from home expenses than they ended up earning in income. That means there is business use of those expenses that has not been taken advantage of, and it can be carried over to the next tax year. Not so with the simplified method.

Other deductions for self-employed individuals

The work from home tax deductions are just one of many self-employment deductions that freelancers can take advantage of. Choosing to itemize your tax deductions only affects SE tax so make sure you also claim the standard or itemized deduction when paying federal tax. Check out some of the other major deductions that are available to taxpayers who work for themselves and who have business use of home.

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.

Are you a freelancer/Business owner?

How the Home Office Deduction Works for Freelancers?