Have you ever noticed that on reality shows like House Hunters, which focus on residential real estate and home renovations, everyone wants a home office? There’s a good reason for that.
Additional home office space is tax deductible each year as long as you meet all filing requirements.
There are many rules about what you can and cannot deduct as a home office expense, and how you can deduct it, but first you need to know if you qualify. The IRS has a clear line where if you receive a W-2 for your work, you are not eligible.
Hannah Cole, an IRS-registered employee and author of Taxes for Humans, said that at the federal level, the work-from-home deduction “doesn’t apply to[company]employees who are remote workers.” Hybrid workers are also emerging.
Some states, such as Pennsylvania, allow W-2 employees to deduct some work-related expenses that are not reimbursed by the company. Check your state’s regulations.
However, the federal government typically reserves the Internal Affairs deduction for people who receive 1099s for work. This typically includes people who are self-employed, freelance, or work on contract. If you have a side job in addition to your W-2 job, you may be able to take a home office deduction.
Last year, about 72.9 million Americans managed their own businesses in some way as self-employed freelancers, consultants or contractors, according to MBO Partners, which provides tools for independent workers.
How does the home office tax deduction work?
The rules are strict and calculating deductions can be complicated.
Here’s a step-by-step guide to understand what to consider in your calculations: (Remove if you qualify for the home office deduction:)
If you are self-employed and use your home office exclusively and regularly for your work, you may be able to deduct some of your housing-related expenses, such as mortgage interest, property taxes, homeowners insurance, and utilities, from your federal taxes.
However, experts say pay attention to the details.
“If you work at your dining table, you can’t deduct it because it’s not dedicated to work,” said Therese Tippy, tax manager and financial planner at EP Wealth Advisors. “But if you buy a desk and put it in a corner of your home and it’s used exclusively for work and on a regular basis, you can deduct that space.”
There are two ways to deduct your home office space: simplified deduction and standard deduction.
Simple home office deduction
For your own home office space, you can deduct $5 per square foot for annual use, up to $1,500 or 300 square feet. If you only use the space part of the time, you’ll prorate the amount, Tippy said.
Normal home office direct deduction
If this happens, the amount deducted may become larger. However, you should keep track of all your home office expenses, including the costs of repairing and maintaining your space.
“If you have a spare bedroom and renovate it to turn it into an office, adding built-in shelving or painting it for Zoom meetings can all be included in your home office expenses,” says Tippy.
You can also claim deductions for some of your other expenses, such as rent and property taxes, home depreciation, and utilities, based on the proportion of your space to the rest of your home.
For example, if your office is 250 square feet and your home is 1,000 square feet, you will deduct 25% of your allowable expenses (250/1,000 = 0.25). If you have $10,000 in qualifying home-related expenses, you can claim a deduction of up to $2,500. There is no limit to the amount that can be deducted.
Can I deduct consumables?
Yes, if they are common in your industry, needed to help your business, and you have receipts.
Deductible items include cell phones, laptops, printers, and other office supplies.
“Given the value of these items, you can write off the entire amount as an expense,” Tippy said. “You don’t have to capitalize it. It’s recorded as an office or supplies expense in the other expenses section of Schedule C.”
However, keep in mind that if you also use any of these items for personal purposes, only the percentage used for work will be deducted. For example, if you buy a $2,500 laptop but use it for work 40% of the time, you can write off $1,000.
Business lunch and entertainment tax deduction
From January 1, 2023, companies had to migrate to Dutch. The business lunch deduction will return to 50% of its pre-pandemic level in 2023.
According to the IRS, entertainment expenses are not deductible and have not been applicable since the Tax Cuts and Jobs Act became law in 2017. If you take someone to a facility that provides entertainment and meals, you must separate the food and beverage expenses from the entertainment expenses and deduct only that portion.
What if my side job is driving?
If you use your car for business purposes, you may be eligible for a deduction based on the mileage you use for that purpose. There are two ways to calculate your deduction:
- Actual usage situation: Workers should separate their expenses into business and personal expenses to determine how much it really costs to drive. “Keep receipts for all oil changes, insurance, repairs, etc.,” Cole said. Look at your mileage to determine how often you use your car for work and personal purposes, then apply that to all your expenses to calculate your deductions. For example, if you drive 2,000 miles and 1,000 miles were used for work, you can deduct 50% of your expenses, she said.
- Standard mileage rate: Workers track the miles they use for work and multiply those miles by the IRS’s 2025 tax rate ($0.70 per mile) to determine their deductions. “It’s much easier to book and allows for better deductions,” Cole said. “It’s a very generous rate and includes things like depreciation, repairs and insurance. Also, if you own an electric car, the rate is based on the cost of gas, not gas.”
Is there a way for W-2 wage earners to get some money back for business expenses?
It’s not a tax, but you may be able to ask your employer.
“If you’re required to work from home, you can try to get your company to pay for it,” Tippy says. “We can refund it and deduct it, but in some cases we might just require the employee to come to work.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
