If you are self-employed and qualify for the home office deduction, you are able to deduct a percentage of your home expenses as a business deduction, including rent, insurance, utilities, maintenance costs and depreciation. This deduction is based on the square footage of the office in comparison to the size of your entire home. However, be warned that the home office deduction rules are very strict, and your claim could be highly scrutinized by the IRS.
Beginning this year, if you meet the regular and exclusive tests to claim a home office deduction, you may be eligible for a "safe harbor" deduction — a simplified way to figure your deduction. The deduction is $5 per square foot to a maximum of 300 square feet; thus the maximum deduction is $1,500. The safe harbor method will allow you to eliminate complicated record keeping and forms for the deduction. To qualify for a deduction, the office must be:
- In a separate room or area of your house. It can also be part of a room, but the area would still have to be used exclusively and regularly for business, so your dining room table where you also eat would not count. However, a desk in your bedroom used solely for business is totally acceptable.
- Your principal place of business, so you can't have another office or store elsewhere. However, see the "storage" exception below.