Most people who are eligible for the home office deduction are self-employed. However, not all self-employed people may claim this deduction.
As we discussed in a previous post, falsely claiming the home office deduction can increase your likelihood of being audited by the IRS. In today’s post, we examine the criteria for this deduction.
Am I really self-employed?
Most self-employed people either own their own business or else work independently—as freelancers, contractors or consultants. Typically, if you’re self-employed, you’ll receive a 1099-MISC or a 1099-K. If you receive a W-2, you’re considered an employee—not self-employed.
To claim the home office deduction, you must dedicate a room in your home exclusively to business use—it can’t double as a guest bedroom, for example. In addition, one of the following must also be true:
- It is your principal place of business—which can simply mean that nearly all of your work is done there. It can also mean that you do your most important work there—i.e., the work that earns you the most income. If you work in several locations, then it means that your home office is where you spend more than half of your working time.
- You do administrative of management tasks for your employer in your home office—e.g., ordering supplies, bookkeeping, billing or appointment setting. As part of this requirement, you must do no—or hardly any—such tasks at another location.
In addition to claiming a deduction on a home office, you can also claim this deduction on a separate, free-standing structure—such as a garage or studio. Here again, the space must be used only for business purposes—it can’t be mixed use. In this case, there is no requirement that it be your principal place of business or that you meet clients in this space. However, you must use the space regularly—a term which is undefined by the IRS.
For more tips on what you can and can’t claim as a tax break, it’s worth consulting with an experienced tax attorney for advice.