Home Office Deduction
Tax deduction for business use of your home.
The home office deduction allows self-employed individuals to deduct expenses for the portion of their home used regularly and exclusively for business. Two methods are available: the simplified method ($5 per square foot, up to 300 sq ft / $1,500) and the regular method (actual expenses prorated by business-use percentage). W-2 employees generally cannot claim this deduction.
Example
A freelancer uses a 200-square-foot room exclusively as an office—the simplified method yields a $1,000 deduction, while the regular method with $18,000 in home expenses and 15% business use yields $2,700.
Why It Matters for Your Business
The home office deduction is one of the most valuable deductions for home-based businesses, but it requires strict exclusive-use requirements to withstand audit scrutiny.
Practical Tips
- •Take photos of your home office space and keep them with your tax records.
- •The simplified method is easier but the regular method often yields a larger deduction.
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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