What Home Office Expenses Can I Deduct as a Freelancer? Guide for the US Taxpayers

Working from home has become the new norm whether you’re an independent contractor, a freelancer, or a full-time remote employee. With this shift, many are wondering how they can save on taxes by deducting home office expenses. 

The IRS (Internal Revenue Services) has guidelines, but they can be a bit tricky to understand. Don’t worry—we’re here to break it all down for you. 

This guide will help you figure out what you can and can’t deduct, so you can make the most of your potential tax savings.

Key Takeaways – Long Story Short

• Qualifying Criteria: Home office must be used exclusively and regularly for business.
• Expense Types: Direct expenses (fully deductible) and indirect expenses (partially deductible).
• Calculation Methods: Simplified method ($5 per square foot) and regular method (percentage of home).
• Additional Deductions: Office supplies, business equipment, internet and phone, professional services, travel expenses.
• Record-Keeping: Keep receipts, invoices, and logs; use accounting software.
• Employee Consideration: Home office deductions primarily for self-employed, freelancers, and contractors post-2017.

1. Who Qualifies for Home Office Deductions?

To qualify for home office deductions as an independent contractor or a freelancer, your home office must meet two primary criteria:

• Exclusive and Regular Use: The space must be used exclusively and regularly for your business. This means a designated area in your home that is solely for work and not used for any personal activities.
• Principal Place of Business: Your home office must be your principal place of business. It should be the main location where you conduct business activities, meet clients, or store inventory.

2. Types of Deductible Expenses

There are two main types of home office expenses: direct and indirect.

Direct Expenses

These expenses are solely related to the home office and are fully deductible. Examples include:

• Painting or repairs to the home office
• A dedicated business phone line

Indirect Expenses

These expenses are related to the entire home but can be partially deducted based on the percentage of your home used for business. Examples include:

• Mortgage interest or rent
• Utilities (electricity, gas, water)
• Homeowners insurance
• Property taxes
• Depreciation of your home

3. Calculating Your Deduction

There are two methods to calculate your home office deduction: the simplified method and the regular method.

Simplified Method

• Rate: $5 per square foot of your home used for business, up to a maximum of 300 square feet.
• Maximum Deduction: $1,500
• Pros: Easy to calculate and requires less documentation.
• Cons: May result in a lower deduction compared to the regular method.

Regular Method

• Calculation: Based on the percentage of your home used for business. For example, if your home office is 200 square feet in a 2,000-square-foot home, your business use percentage is 10%.
• Documentation: Requires detailed record-keeping of all home-related expenses.
• Pros: Can result in a higher deduction if your expenses are significant.
• Cons: More complex and time-consuming.

4. Additional Deductible Expenses

Beyond direct and indirect home office expenses, you may also be able to deduct:

• Office Supplies: Items such as paper, pens, and printer ink.
• Business Equipment: Computers, printers, and office furniture.
• Professional Services: Fees paid to accountants, attorneys, or consultants.
• Travel Expenses: If you need to travel for business purposes, these costs can be deductible.
• Internet and Phone: The portion of your internet and phone bills used for business purposes.

5. Common Misconceptions

Personal Expenses

Personal expenses, such as groceries, gym memberships, or general home repairs not related to the home office, are not deductible.

Dual-Purpose Spaces

Spaces that serve both personal and business purposes (like a kitchen table used for work) generally do not qualify for the home office deduction.

6. Record Keeping

Keeping accurate records is key to maximizing your deductions and staying safe if you ever get audited. It is a good habit to hold onto those receipts, invoices, and keep detailed logs of your business activities and expenses. By using accounting software, you can make managing and organizing all this stuff a breeze.

7. Special Considerations for Employees

For employees working from home, the Tax Cuts and Jobs Act of 2017 eliminated the ability to deduct home office expenses. This deduction is now primarily available to self-employed individuals, freelancers, and independent contractors.

Conclusion

Understanding which expenses you can deduct when working from home can significantly impact your tax savings. Ensure your home office meets the IRS criteria, choose the right calculation method, and keep detailed records of your expenses. 

By doing so, you can confidently claim your home office deductions and potentially reduce your tax liability. If you’re ever in doubt, consulting a tax professional can provide additional guidance and peace of mind.