Why these deductions matter

Working from home doesn’t just change your commute—it changes your tax picture. Many home-based workers miss legitimate deductions that can lower taxable income and improve cash flow. These are not blanket write-offs: eligibility and proper documentation matter, and some rules differ sharply depending on whether you’re self-employed, an independent contractor, or a W‑2 employee.

This article focuses on practical, lesser-known deductions for home-based workers and how to claim them correctly. I’ve advised hundreds of remote and self-employed clients over 15 years; the best savings come from accurate allocation, careful records, and knowing a few less obvious rules.

Who can claim these deductions?

  • Self-employed taxpayers and sole proprietors (Schedule C filers) can generally claim business-related home deductions.
  • Partners and owners of pass‑through businesses typically claim their share on Schedule K-1 or pass-through reporting and may access similar deductions at the entity level.
  • Most W‑2 employees working from home cannot claim business expenses through 2025 because of the Tax Cuts and Jobs Act suspension of miscellaneous itemized deductions. Exceptions exist for certain categories (e.g., some performing artists, reservists); see IRS guidance and Pub 587 for details.

Authoritative source: IRS Publication 587, Business Use of Your Home (for use and rules) and IRS guidance on self-employed deductions.

Lesser-known deductions and how they work

Below are deductions that home-based workers often miss, with practical notes on eligibility and recordkeeping.

1) Home office deduction (simplified and regular methods)

  • What it covers: A deduction for the portion of your home used regularly and exclusively for business. This can apply to a room, a dedicated area, or a separate structure used for business.
  • Two methods: simplified ($5 per square foot, up to 300 sq ft, max $1,500) or regular (actual expenses: mortgage interest, rent, utilities, insurance, repairs apportioned to business use). The regular method can include depreciation on the business portion of your home.
  • Pitfalls and benefits: The simplified method is easier and avoids depreciation tracking but may be smaller than the regular method for higher expenses. If you later claim depreciation and sell the house, you may need to report depreciation recapture as income.
  • Internal reading: see our deeper guide on simplified vs regular method for examples and worksheets (Home Office Deduction: Simplified vs Regular Method Explained).
  • IRS references: Pub 587 and Form 8829 (Expenses for Business Use of Your Home) when using the regular method.

2) Self-employed health insurance deduction (above-the-line)

  • What it is: If you’re self-employed and pay health insurance premiums for yourself, spouse, and dependents, you can usually deduct the premiums as an adjustment to income. This reduces your adjusted gross income (AGI), which can lower other taxes and phaseouts.
  • Key limits: You cannot take this deduction if you were eligible to participate in an employer-sponsored plan (including a spouse’s plan) that covered you during the tax year.
  • Why it’s often missed: People who pay premiums through a marketplace or change coverage mid-year sometimes fail to claim the deduction or misunderstand eligibility.
  • Internal resource: see our Self-Employment Health Insurance Deduction page for guidance and examples.
  • IRS reference: Internal guidance and instructions for Schedule 1.

3) Internet, phone and communications allocation

  • What qualifies: You can deduct the business portion of your internet and cell phone costs. If a line is used for both business and personal use, allocate a reasonable percentage based on time or usage.
  • Best practice: Keep monthly bills and a usage log or a sampled period showing business calls and data. Overclaiming business use is a common audit trigger.
  • IRS guidance: treat these as ordinary and necessary business expenses under Pub 535.

4) Business travel and away-from-home expenses

  • Examples: Out-of-town client meetings, conferences, or trade shows. Eligible costs include airfare, lodging, business-related ground transportation, and 50% of business meal costs (subject to current rules).
  • Documentation: Keep receipts, itineraries, and contemporaneous notes about business purpose and whom you met. If travel mixes business and personal days, allocate costs accordingly.
  • See Pub 463 for detailed rules.

5) Education and training related to your current trade

  • Deductible when educational costs maintain or improve skills required by your business (not for qualifying you for a new trade). Examples: software courses, certifications, continuing education directly tied to current work.
  • Non-deductible examples: schooling that qualifies you for a new occupation.
  • IRS reference: Pub 535 on business expenses; consider the Lifetime Learning Credit (Publication 970) when credits may apply instead.

6) Home repairs, improvements, and depreciation

  • Repairs that benefit only the business area (e.g., painting a home office) are deductible as current expenses. Improvements that benefit the whole home are generally capitalized and depreciated over time for the business portion.
  • Depreciation: If you use part of your home for business and claim the regular method, you may depreciate the business portion of the home. Remember depreciation recapture rules apply on sale—keep records.

7) Startup and organizational costs (for new home-based businesses)

  • Under IRC section 195, you can deduct up to $5,000 of startup costs in the first year (phase-out rules apply) and amortize remaining startup costs over 180 months. This is frequently overlooked by new side-hustlers working from home.

8) Supplies, software, and small equipment

  • Items such as office furniture, business-specific software subscriptions, cloud services, and even small capital purchases (subject to Section 179 or bonus depreciation limits) can be deducted or depreciated.
  • For small-dollar purchases, the IRS safe-harbor de minimis rules or your bookkeeping policy often allow immediate expensing.

9) Retirement plan contributions (SEP/SIMPLE/Solo 401(k))

  • Not a deduction for home use per se, but commonly missed by home-based workers: contributions to a qualified self-employed retirement plan reduce taxable income and are powerful long-term savings tools.

Recordkeeping checklist (what to keep)

  • Square footage measurements and a diagram of the home office area.
  • Receipts and invoices for utilities, repairs, internet, insurance, and supplies.
  • Homeowner or renter documents that support mortgage interest or rent paid.
  • Insurance documentation and premium receipts for health insurance.
  • Mileage logs or vehicle expenses if using a car for business (or keep standard mileage rate calculations).
  • Course registrations and documentation tying training to your business.
  • Bank and credit card statements that pair with receipts.
  • A contemporaneous travel diary or business purpose notes for meetings.

Good practice: keep digital backups, name files consistently, and keep records for at least three years (longer if you file depreciation or if state rules require additional retention).

Common errors and audit triggers

  • Claiming a home office that’s not used exclusively for business. The exclusive-use rule is strict—sharing the space (family dining table) often disqualifies the deduction.
  • Overstating business use percentages for internet, phone, or utilities.
  • Not tracking travel purpose or mixing heavy personal travel without clear allocation.
  • Failing to report income from side gigs while claiming business expenses.

Practical examples (short)

  • Example A: A freelance designer using a 150-sq-ft dedicated office claims the simplified home office deduction ($5 × 150 = $750) and apportions 40% of her monthly internet bill to business. She keeps copies of project invoices to link expenses to income.
  • Example B: A consultant who pays his own health premiums claims the self-employed health insurance deduction on Schedule 1, lowering AGI and easing student loan repayment calculations tied to AGI.

How to decide simplified vs regular home office method

  • Use the simplified method if you prefer ease and have low actual home office costs.
  • Use the regular method if mortgage interest, utilities, insurance, and depreciation add up to more than the simplified allowance.
  • Recalculate both ways for the first year to see which gives the bigger tax benefit. Keep records in case you switch methods (rules apply when switching, especially with depreciation).

State tax considerations

State treatment of these deductions varies. Some states conform to federal rules; others do not. Check your state’s department of revenue website or consult a tax professional for state-specific guidance.

Further reading and internal resources

Final professional tips

  • Reconcile deductions with revenue: never claim large business losses year after year without a plan—this can attract IRS attention.
  • Keep contemporaneous records; estimates and post-hoc allocations are weaker under audit.
  • Consider quarterly estimated tax payments to avoid penalties if your home-based work produces significant income.
  • When in doubt, get a short consult with a CPA who specializes in small business taxes; the right advice often pays for itself.

FAQ (brief)

Q: Can a W-2 employee who works remotely claim a home office deduction? A: Generally no for tax years through 2025 because of the TCJA suspension of miscellaneous itemized deductions. Exceptions are rare—check IRS Pub 587 and consult a tax pro.

Q: If I use my living room as a workspace during the day, does that qualify? A: No—exclusive and regular use is required for the home office deduction. Occasional or shared use won’t qualify.

Professional disclaimer

This article is educational and not personalized tax advice. Rules change and individual situations vary—consult a qualified tax professional or the IRS before claiming deductions.

Authoritative sources

  • IRS Publication 587, Business Use of Your Home (current rules and examples). See: https://www.irs.gov/pub/irs-pdf/p587.pdf
  • IRS Publication 463, Travel, Gift, and Car Expenses
  • IRS guidance on self-employed health insurance and Schedule 1 instructions