The home office tax deduction is valuable, accessible -- and sadly misunderstood. Misled by rumors of increased likelihood of audit, many hard-working freelancers fail to claim what’s rightfully theirs. Adding to the confusion, the 2017 Tax Cuts and Jobs Act eliminated the home office deduction for W-2 employees, making some folks believe that it no longer applies to freelancers either. Let’s clear that up.
If you work from home as a freelancer, 1099 contractor, or self-employed, then you most likely qualify. You don’t need a dedicated mahogany-clad room with a fancy placard on the door.
The IRS defines a home office as a space within your home used exclusively and regularly as your main place of work. Let’s clarify this.
A home office doesn’t need to be a separate room -- for many of us living in an urban area, that’s not really an option anyway. A desk in your bedroom or living room, counts. But don’t claim the couch or your bed as a home office -- those pieces of furniture are clearly not used “exclusively” for work.
You don’t need to be a social recluse who never leaves the house in order to claim the home office deduction. You’re welcome to work from coffee shops and visit client sites and meetings, as long as you use your home workstation weekly.
For example, if you’re a real estate broker constantly running between open houses and answering emails on your phone, you can still claim a home office, since you use it for computer work every week. However, as a delivery driver you often have little need for computer work, and using your workstation a few times a year to organize expenses doesn’t count as regular use.
With the global Coronavirus pandemic and mandatory quarantine in place in most states, almost every freelancer in 2020 should claim a home office for at least part of the year. For example, if you normally work from a co-working space but started working from home in April, then you can claim the home office deduction beginning in April.
Unfortunately, you can’t claim studio lease or co-working space fees alongside a home office. You’re free to claim a home office one month and then a coworking membership the next, but not both in the same month.
Having a home office allows you to write off a percentage of all home-related expenses: rent, utilities, and even some types of home consumables. This can be extremely valuable -- even worth up to thousands of dollars, depending on how much you pay for housing.
To calculate this percentage, you’ll need to estimate the size of your office or workstation and divide it by the total square footage of your home. For example, a medium-sized desk and some surrounding area for a desk chair is about 10 ft x 8 ft. If you have a 500 sq foot home, that means you can write off (80 sq ft) / (500 sq ft) = 16% of all your home expenses.
Great, now let’s figure out what a home office allows you to write off!
A percentage of your monthly rent payment is tax deductible for every month you claim a home office. With the cost of urban rent these days, this write-off can be extremely valuable!
Power, water, gas, water, and trash removal are all partially tax deductible if you have a home office.
Home essentials like cleaning supplies, soap, and, yes, even toilet paper are partially tax deductible. Think about it this way: if you weren’t working from home, you wouldn’t need to use up nearly as much of your personal toilet paper.
The cost of a desk, chair, monitor, and other furniture for your workstation is fully tax deductible. You don’t need to take a percentage of these expenses, since they’re used exclusively for work.
Wifi is certainly a necessity for working out of your home, so don’t forget to claim your monthly Comcast bill on taxes!
Appliance repair, replacing lights, roof repair, and other home maintenance expenses are tax deductible if you have a home office. Keep in mind that if the maintenance is done exclusively in your home office workstation, you can write off the entire amount!
If you pay for renter or homeowner insurance, write off a percentage of the monthly bill thanks to your home office.
If you have a security system that protects your home like ADP or cameras for monitoring like Ring or Nest, be sure to include those as well.
If you own your home, then instead of rent you can write off a percentage of your home depreciation, property taxes, and mortgage interest. Don’t worry about crunching the numbers yourself -- great tax filing software like Keeper Tax does the math for you, at tax time.
In 2013, the IRS started offering a simplified option to calculate home office tax savings. In short, rather than getting to deduct a percentage of all your home-related expenses, you can choose to claim a $5 tax deduction per square foot. Unfortunately, this option tends to be significantly less valuable (tax nerds should check out our simplified vs actual scenario-level breakdown).
Keeper finds tax deductible expenses among your purchases ... automatically! Save $1000s a year claiming the tax write offs you’re eligible for as a contractor.