6 Home-Based Business Tax Deductions to Claim

So, what can I actually deduct if I run my business from home? That's the question many self-employed business owners are asking themselves, or should be. Owners and entrepreneurs should take advantage of every tax deduction they're legally allowed to claim. Deductions reduce your taxable income and overall tax liability, yet many small business owners miss them simply due to confusion. If you feel like you've missed out, don't worry. With the right strategy, home-based business owners can significantly reduce their taxable income.

Use this article to understand if your operations qualify as a home-based business, the top deductions you can claim, which calculation method to use, and how professional support ensures a seamless process.

Key Takeaways

• Small business owners whose offices are primarily at home are considered to be running home-based businesses.

• Only self-employed individuals can claim deductions for a home-based business.

• Operating costs and travel are among the top tax-deductible expenses for home-based business owners.

• The home office deduction is calculated via one of two methods: the simplified or regular method.

• Maintaining documentation supports your claim during tax preparation, and if the IRS has questions about a deduction.

• Affordable, tax-deductible support from 1-800Accountant ensures your home-based business claims every eligible deduction.

What Is a Home-Based Business?

A home-based business owner operates primarily from an office in their home. The IRS offers tax advantages to individuals who dedicate a portion of their living space to their business. Both homeowners and renters may take a home office tax deduction if they qualify.

Remote and hybrid employees are not eligible for home-based business tax incentives. You must be a sole proprietor or other type of self-employed individual who files Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), not a W-2 employee, to take the home office deduction.

Your home office must follow Publication 587, Business Use of Home, IRS rules.

• The “exclusive use” test requires you to use part of your home exclusively for business. You can designate your den as an office, where you use the space solely for business purposes, but not the dining room, where you eat with your family.

• The “regular use” test requires that you frequently use it for your business. Using the space once a week typically doesn't suffice.

• The “principal place of business” test requires your home office to be the primary place where you operate. If your home is the only established place where you conduct client calls and complete administrative responsibilities, it usually qualifies.

How Does My Home Qualify for Business Tax Purposes?

The IRS outlines several types of living spaces as eligible for home-based business tax expense deductions.

Your business can establish a home office in a:

• House

• Apartment

• Condo

• Mobile home

• Boat

• Detached garage or studio

• Space for daycare

If your house is rented out to overnight guests, the rental space cannot qualify as an office. Remember, it must be used exclusively and regularly for your operations and be your principal place of business. It cannot be used for personal and business purposes.

If you and your spouse or roommate (another self-employed person) operate separate businesses from home, you can each take home-based business tax deductions, but you cannot take tax incentives for the same space. If two people share a dedicated office, only one person may take a tax benefit for the room.

Consult with tax professionals to determine whether your LLC or sole proprietorship qualifies for a home-based business tax incentive.

Small Business Tax Deductions for Home Businesses

So, what can home-based businesses claim as tax-deductible expenses? Your small business can deduct day-to-day expenses in addition to your home office costs.

Self-Employed Business Deductions

Aside from the home office deduction, you can deduct your operational costs. For example, your small business may incur managerial and professional service fees.

Freelancers and independent contractors can deduct the following costs, regardless of their eligibility for a home office deduction. Review your spending to identify any deductions you might have missed.

1. Operating Expenses

Operating expenses include the day-to-day costs you incur while running your business, as well as anything else deemed ordinary and necessary. This includes:

• Employee salaries and wages

• Cost of goods sold

• Supplies and equipment

• AI tools

• Software subscriptions

• SaaS tools

2. Travel Expenses

Consider your travel for business-related meetings and events. Travel expenses may include the following:

• Mileage (72.5 cents per mile in 2026, updated annually)

• Airfare and lodging

• Transportation services

Commuting to your primary office is not considered a deductible expense, while business travel is.

3. Business Insurance

Your company can deduct premiums for insurance policies such as the following:

• Employee medical and retirement plans

• Malpractice

• Workers’ compensation

• Cyber and professional liability

4. Depreciation

Until the passage of the One Big Beautiful Bill Act (OBBB) in 2025, taxpayers typically depreciated large equipment over its useful life. For example, office furniture was depreciated over several years rather than fully deducted in the year of purchase. Owners would then deduct their business depreciation expense on their annual federal tax return.

The OBBB has changed that. The Section 179 deduction allows owners to immediately expense up to $2,560,000 of business equipment and software, with a total purchase limit of just over $4,000,000. 100% bonus depreciation has also been reinstated. Small business owners use these in conjunction. First, they apply the Section 179 deduction to the first $2.5 million in qualifying purchases. Then, bonus depreciation is applied to the rest.

5. Other Common Business Deductions

IRS Publication 535, Business Expenses, details numerous costs that may qualify as tax deductions. Consider whether your company incurs the following:

• Advertising costs

• Marketing tool expenses

• Industry-related and educational training costs

• Business loan interest

• Internet and phone (the business percentage)

• Legal and professional fees

Review the IRS guidance for a list of costs you can deduct and schedule a free consultation with 1-800Accountant to maximize your tax write-offs.

Home Office Deduction

To write off the business use of your home, consider expenses such as:

• Real estate taxes

• Mortgage interest

• Rent

• Utilities

• Insurance premiums

• Maintenance

• Repairs

Simplified vs. Regular Method

The IRS allows two options for calculating the home office deduction. Taxpayers can choose the regular method or the simplified method.

The simplified method is best for owners who favor simplicity, while the regular method is best for owners who prefer the largest deductions possible.

The regular home office deduction method follows two steps.

Step 1: Total your home costs, such as your utilities, insurance, mortgage interest, or rent for the year. The following indirect costs are eligible for allocation to your home office:

• Home expenses (also considered itemized deductions on Schedule A (Form 1040), Itemized Deductions):

  • Home mortgage interest

  • Real estate taxes

• Business-related expenses (otherwise nondeductible on your tax return):

  • Home depreciation

  • Homeowners Insurance

  • Rent

  • Repairs and maintenance

  • Utilities

Step 2: Allocate your indirect home costs to your office space.

Your allocation depends on the ratio of your office to your total living area. Divide the square footage of your office by the total square footage of your home (including your office).

Multiply the result by your indirect expenses from the business use of your home (from Step 1). The product represents your home office space deduction.

For example, imagine your home office occupies 100 square feet of your 2,500-square-foot house. If your indirect costs totaled $5,000 for the year, your home office deduction would be $200: 100 SQ FT / 2,500 SQ FT x $5,000 = $200.

The simplified option allows taxpayers to avoid complex calculations.

The simplified home office deduction represents $5 per square foot of the business owner’s home office. The deduction limit is 300 square feet, or $1,500.

If you use the simplified method, you cannot deduct indirect expenses such as:

• Rent

• Repairs

• Home depreciation

Note that homeowners can still take itemized deductions for mortgage interest and real estate taxes.

Which method maximizes your deduction? Tax professionals can help you determine whether to use the regular or simplified calculation.

What Expenses Qualify

A cost associated with your home office is a direct expense, while a cost associated with the entire home is an indirect expense. Both can be deducted, but different rules govern them.

Direct expense examples:

• Office repairs

• Maintenance, including painting

• Lighting, shelving, and other office purchases

• The cost of a dedicated business phone line

Indirect expense examples:

• Rent

• Interest

• Homeowners insurance

• Property taxes

100% of direct expenses may be claimed, while indirect expenses are connected to the square footage used for your office. If you're using 20% of your home as an office, you may claim 20% of indirect expenses.

Common Mistakes to Avoid

If you handle your own business taxes, make sure you avoid these common mistakes when claiming home-based business self-employed tax deductions.

• Mixing personal expenses with business expenses. Personal expenses aren't typically deductible.

• Overestimating the square footage used. Estimates must be accurate.

• Poor documentation habits. You can't accurately claim a deduction without proper paperwork, nor can you defend it if the IRS takes a closer look.

What You Can’t Deduct

Certain home office costs are nondeductible, regardless of the calculation method.

Personal expenses incurred for non-business activities do not qualify for tax incentives. For example, personal renovations, such as decorating your office or remodeling a bathroom, which is a nonexclusive space, represent unrelated expenses. Fines and penalties are also nondeductible for tax purposes.

Additionally, you must not deduct home office expenses exceeding your business income for the tax year. For example, if your home-based business generated $300 of net income before the home office deduction, your limitation would be $300.

How to Claim the Home Office Deduction

Home-based small business owners can claim tax benefits by attaching the relevant schedules to IRS Form 1040, U. S. Individual Income Tax Return.

• Sole proprietors should complete Schedule C to report income and expenses. You can list the simplified home office deduction here.

• If you opt for the regular method, use IRS Form 8829, Expenses for Business Use of Your Home. Form 8829 instructions provide helpful guidance for classifying your expenses and calculating inputs.

• Homeowners should use IRS Form 1040 Schedule A to report itemized deductions such as home mortgage interest.

Recordkeeping Requirements

Maintain thorough records supporting your deduction. In case of an audit, you should be ready to provide acceptable documentation detailing:

• The portion of your home you use exclusively to operate your business

• The indirect expenses allocated to your home office

• Your rent or mortgage interest expense and real estate taxes for the year

• Depreciation expense calculations, including the purchase price of your home

Additionally, you should maintain comprehensive bookkeeping records to support your business income and expenses. The IRS requires taxpayers to keep records for the latest of the following:

• (i) two years after the tax was paid

• (ii) three years after the return filing

• (iii) three years after the return due date

FAQs About Home-Based Business Deductions

Can I deduct internet if I work from home?
Yes, you can deduct internet costs if you work from home as a self-employed individual. However, some rules limit the amount you can claim. You are limited to claiming the business portion of your internet bill. Meaning: if you use your internet connection for business half the time, 50% can be deducted.

Can I claim the home office deduction if I have another office?
Yes, it is possible to claim the home office deduction if you have another office. The space you're claiming must be used exclusively and regularly for business to qualify. In this scenario, you're free to use either calculation method.

What happens if I get audited?
Audits are never fun, but if you do receive notice, stay calm throughout the process. Comply with IRS requests in a professional, timely manner. They will ask you for documentation supporting your deductions, which should be stored in a secure, centralized location. If your supporting documentation checks out, there will likely be no change, meaning your case is closed.

Can an LLC claim home office deductions?
Yes, an LLC can claim the home office deduction. The rules and methods you'd use remain unchanged, so refer to this guide if you handle your own tax and deduction maximization. However, the forms you'd use may differ by entity. For single-member LLCs, use Schedule C for deductions.

Is the home office deduction a red flag?
While there was agreement among accounting professionals that claiming the home office deduction was a red flag, this is no longer the case. As long as you adhere to the rules outlined in this article, you should be free to claim this deduction. If you're still unsure about audit risk, professional support can help.

Maximize Your Deductions With Expert Help

The IRS imposes stringent rules on the home office deduction, but complex calculations shouldn’t keep you from running your business. You can still benefit from home-based business tax advantages.

1-800Accountant, America's leading virtual accounting firm, can support your tax reporting throughout the year. Our transparent, tax-deductible services save time while ensuring the freedom to focus on your next business milestone. When you become a 1-800Accoutant, you get:

• A dedicated accountant who understands state rules and your industry.

• Year-round support, not just in April.

• Tax deduction selection and maximization.

Tax and accounting experts offer guidance on complex rules and calculations, and help you find deductions you probably didn’t know existed.

Small business professionals can help you maximize your home office deduction. Schedule a free consultation with 1-800Accountant to learn how our tax advisory services can lower your tax bill in 2026.