Most small business owners and independent contractors are unaware that they can earn as much as $1,500 a year by working from home. The home office deduction, or as this tax credit is otherwise known, can be the greatest financial move for self-employed workers.
With the 2025 tax season already in full swing, it is critical to understand how this deduction works and how to qualify. Regardless of whether you’re running a freelance business, an internet store, or side consulting, this deduction could be useful. And the best part? Millions of taxpayers can claim it, but only with particular regulations.
IRS deduction gives up to $1,500 per year for qualified home office use
Home office deduction allows qualifying individuals to claim a portion of expenses that pertain to the home, like rent, utilities, and insurance. This particularly applies to individuals who dedicate part of their home permanently and continuously to business.
The deduction can be figured in one of two ways:
- Simplified method: Claim $5 per square foot of home office space, with a 300-square-foot limit. That’s a maximum deduction of up to $1,500.
- Regular method: Take away the true percentage of your home used for business to generate accurate expenses.
The self-employed can only use this IRS deduction
Here’s the small print: this deduction doesn’t apply to everyone. You need to be self-employed. If you work remotely as a W-2 employee, the IRS no longer allows you to deduct this.
To qualify, your home office needs to be:
- Used often and only for business.
- Your principal place of business, or where you conduct customer/client meetings.
Exercising this deduction risks triggering an audit, so everything has to be documented in detail, including photos of your setup and floor plans reflecting square footage.
IRS deduction holds even for working part-time from home
Most individuals believe that if they just work from home part-time, they don’t qualify. If your home office is only used for business purposes, even a part-time business can qualify. This means freelancers, Etsy sellers, consultants, and small e-commerce business owners can take advantage of this IRS deduction. Even if you’re earning just a side income, this tax break can reduce your taxable income and boost overall savings.
IRS extends tax deadline to May 1 in 8 states
Eight states have been granted an extension to submit the 2025 taxes due to extreme weather and natural disasters. The new IRS tax filing deadline for these eight individual states is May 1, 2025:
- California
- Connecticut
- Maine
- Massachusetts
- Michigan
- New Hampshire
- Rhode Island
- West Virginia
How the IRS home office deduction improves business budgeting
Every dollar saved under this deduction can be invested in your business. That’s why smart entrepreneurs are rethinking their budgeting plans. Deducting home office expenses helps with:
- Lowering the self-employment tax burden
- Improving profit margins
- Increasing quarter planning accuracy
If you’re not sure which approach to take or need more details, see the guidelines on the IRS official website.
Small steps now lead to big savings later
Even if you own a small business, this tax deduction is well worth pursuing. Start by creating a dedicated workspace, tracking your business expenses, and reviewing the IRS eligibility requirements. By taking these proactive steps ahead of time, you will simplify the filing process and not leave money on the table.
The IRS home office deduction is not just a tax savings, it’s a business growth strategy. By optimizing it, small business owners can save more, reduce the cost burden, and generate long-term profitability.
With the 2025 tax season already open and extensions available in eight states, now is the time to act. Don’t let this get away and miss your opportunity to maximize your return and keep more of what you earn.
