How to Track Work-From-Home Expenses for Tax Time

Why consistent tracking matters

Working from home changed how many people deduct business costs. If you’re self‑employed or run a home-based business, careful tracking turns everyday expenses into legitimate tax savings. The IRS lets qualifying taxpayers use either the Simplified method (flat rate per square foot) or the Regular method (actual expenses allocated by business-use percentage). Accurate records make both methods easier to calculate and defend in an audit (IRS Publication 587).

In practice, I’ve seen clients increase home-office deductions by hundreds or thousands of dollars simply by switching from ad‑hoc receipts in shoeboxes to a structured tracking routine. That means separating business charges, timestamping receipts, and keeping clear notes about exclusive business use.

Sources and quick legal context: the home office deduction rules and recordkeeping requirements are summarized in IRS Publication 587 and the IRS recordkeeping guidance; employees generally cannot claim unreimbursed employee business expenses through 2025 because of the Tax Cuts and Jobs Act, so most W‑2 employees won’t be able to deduct home office costs on their individual returns (IRS, Publication 587; IRS Recordkeeping guidance).

Who can claim a home office deduction?

• Self‑employed taxpayers and independent contractors who use part of their home “regularly and exclusively” for business may qualify (see IRS Pub. 587).
• Owners of businesses that operate from home (Schedule C filers, partnerships, S corporations where the owner meets use tests) may claim the deduction according to their filing method and entity rules.
• Employees: for federal tax purposes, employees cannot claim unreimbursed home‑office expenses on their individual returns for tax years 2018–2025 unless the employer reimburses them under an accountable plan. State rules vary; check your state tax guidance or employer policy.

“Regularly and exclusively” means the space is used substantially every workday for business and is not used for significant personal activities. Occasional use (eating at the desk, checking mail) can complicate eligibility.

What expenses should you track?

Track both direct and indirect expenses. Direct expenses apply only to the office space (e.g., paint for the office, a desk). Indirect expenses are for the whole home and get allocated by business‑use percentage (e.g., utilities, mortgage interest, rent).

Key categories to track:

• Home office square footage and total home square footage (used to compute business percentage)
• Rent or mortgage interest (note: mortgage interest may also be claimed as an itemized deduction; the business portion can be used for the home‑office deduction under the Regular method)
• Real estate taxes (portion allocated to business use)
• Utilities: electricity, gas, water, garbage
• Internet and phone: track total cost and reasonable business usage percentage
• Homeowner’s or renter’s insurance (portion allocated)
• Repairs and maintenance (distinguish repairs to the office vs. whole-home repairs)
• Depreciation (if using Regular method and you own the home; Form 8829 instructions apply)
• Office furniture, computers, software, supplies (deductible as business expenses when used for business)
• Cleaning services or a portion of shared services

Simplified vs. Regular method — how to choose and calculate

Simplified method:

• Rate: $5 per square foot for up to 300 square feet (maximum deduction $1,500) as of current IRS rules. Use this when you want minimal recordkeeping — you still must show the office qualifies as exclusive and regular business use (IRS Pub. 587).

Example: 150 sq ft × $5 = $750 deduction.

Regular method:

• Compute business‑use percentage: (office square footage ÷ total home square footage). Apply that percentage to indirect expenses (utilities, rent/mortgage interest, insurance) and add direct expenses in full.
• Use IRS Form 8829 (for sole proprietors) to calculate allowable home office expenses and depreciation. Keep supporting receipts and calculations.

Example: Home 2,000 sq ft, office 200 sq ft → 10% business use. Annual utilities $2,400 → deductible portion $240.

Which to pick?

• Simplified is easier and works well for small, straightforward home offices under 300 sq ft.
• Regular method often yields a larger deduction for high overheads or large, expensive homes—but it requires detailed records and, if you sell the home, may affect depreciation recapture.

Step‑by‑step tracking checklist (what to do each week/month)

1. Measure the office and calculate business percentage. Record measurement date and method.
2. Open a separate business bank account and/or dedicated business credit card. Use these for all business purchases when possible.
3. Digitize receipts immediately. Scan or photograph with date and vendor, and save in a labeled cloud folder (e.g., HomeOffice/Utilities/2025).
4. Tag each purchase: “office furniture,” “internet,” “utilities — business portion” and note the business percentage used.
5. Record recurring monthly costs in a spreadsheet or accounting app: rent, mortgage interest, utilities, internet, insurance.
6. Track time if you need to substantiate business use for spaces used intermittently. A simple log or calendar entries work.
7. Reconcile bank and card statements monthly to catch missed expenses.
8. At year‑end, run totals by category and compute deductible amounts using your chosen method.

Suggested spreadsheet columns (sample structure)

• Date
• Vendor
• Amount
• Expense category (Utilities, Internet, Furniture, Supplies, Rent/Mortgage)
• Direct or Indirect
• Business % (if indirect)
• Notes / Invoice number
• Receipt (link to cloud file)

A simple template helps make Form 8829 or a tax preparer’s job straightforward.

Tools and apps that simplify tracking

• Accounting: QuickBooks Self‑Employed, Wave, FreshBooks
• Expense capture: Expensify, Receipt Bank (Dext), Shoeboxed
• Cloud storage: Google Drive, Dropbox, OneDrive for receipt backups

Use tools that let you tag and search receipts by category and attach them to transactions. The Consumer Financial Protection Bureau recommends keeping records in an organized, reliable format and backing up digital copies (CFPB – managing personal finances).

Record retention and audit preparedness

• Keep supporting records for at least three years after filing, but consider retaining them for six years if you think you may have omitted more than 25% of gross income in a year; seven years for certain situations (see IRS recordkeeping guidance).
• Save invoices, canceled checks, bank/credit card statements, and the measurement record for your office space. If you use depreciation, preserve basis calculations and depreciation schedules.
• If the IRS requests documentation, respond promptly and provide clear, organized files—organized digital copies accelerate review and reduce audit time.

For audit examples and what the IRS typically examines in small home‑office audits, see our guide: What the IRS Looks for in Small‑Scale Home Office Audits (FinHelp) (https://finhelp.io/glossary/what-the-irs-looks-for-in-small-scale-home-office-audits/).

Employer reimbursements and accountable plans

If your employer reimburses home‑office expenses under an accountable plan (they require receipts and return of excess amounts), reimbursements are usually excluded from income and you don’t claim those expenses on your return. Unreimbursed employee expenses generally remain nondeductible for federal returns through tax year 2025 because of the Tax Cuts and Jobs Act; check your employer’s reimbursement policy and consult state rules where they differ (IRS guidance on accountable plans; IRS Pub. 587).

Common mistakes to avoid

• Mixing personal and business expenses in the same account without clear tags.
• Claiming a space that’s not used exclusively for business (e.g., a dining table used for meals).
• Failing to keep receipts or date‑stamped evidence of purchase and business use.
• Using the simplified method and then also claiming depreciation without following IRS rules—understanding the tax consequences on sale of home is important.

Practical examples

1) Simplified method — Anna works from a 120 sq ft home office. She claims 120 × $5 = $600 without allocating utilities or rent separately. She keeps photos of the office and utility bills as backup.

2) Regular method — Marcus owns his home. Office = 250 sq ft, home = 2,500 sq ft → 10% business use. Annual mortgage interest $10,000, utilities $2,000, insurance $600. Business deduction = 10% of these indirect costs ($1,260) + direct expenses (office paint $200; desk $400).

Final year‑end checklist before filing

• Confirm which method (Simplified vs Regular) gives the best result.
• Produce a one‑page summary: total square footage, business percentage, totals by category, and links to receipts.
• If filing Schedule C, attach Form 8829 if using the Regular method and include depreciation schedules.
• Store a copy of all documentation for the recommended retention period.

Where to get more help

• IRS Publication 587, Business Use of Your Home: https://www.irs.gov/publications/p587
• IRS Recordkeeping basics: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
• For internet‑specific deductions, see our article: Home Office Internet Expenses Deduction (https://finhelp.io/glossary/home-office-internet-expenses-deduction/).

Professional disclaimer: This article is educational and does not replace personalized tax advice. Tax rules change and individual situations vary; consult a CPA, enrolled agent, or qualified tax advisor before taking action specific to your circumstances.

Further reading on home office rules and common overlooked deductions can help you refine your tracking system: Home Office Deduction (https://finhelp.io/glossary/home-office-deduction/).