Self-employed workers who use a dedicated area of their home for business can often deduct related costs, but how you compute the deduction matters. The IRS allows a simplified option or a regular, expense-based method. The right choice depends on the size of your workspace, the accuracy of your records, and whether depreciation is beneficial. Getting the rules right also means keeping clear documentation and protecting those records with solid security practices.

Simplified vs regular: which fits your space?

The simplified method applies a flat $5 per square foot to your qualified business area, up to 300 square feet, for a maximum deduction of $1,500. You skip depreciation and detailed expense allocation. The regular method requires measuring your home office as a percentage of your home and applying that percentage to eligible indirect expenses (rent, mortgage interest, utilities, insurance, and repairs), plus any direct office-only costs at 100%. Using the regular method may yield more than $1,500 if your space is large or your costs are high, but it requires Form 8829 and more thorough records.

Example: If your office is 200 square feet in a 2,000-square-foot home (10%), and your annual eligible indirect expenses total $20,000, the prorated portion is $2,000. If you also have $300 of direct office repairs, the regular method could yield $2,300 before any limits. The simplified method would be $1,000 (200 × $5). In years with lower household costs, the simplified option may be competitive and easier to substantiate.

Eligibility and exclusive-use basics

To qualify, the space must be used regularly and exclusively for business. It should be your principal place of business or a place where you meet clients, or be a separate, freestanding structure used for business. Measure the area in square feet and ensure it is not used for personal activities. Direct expenses (e.g., painting the office) are fully deductible under the regular method; indirect expenses are allocated based on the office-to-home ratio. Both methods are subject to income limits: the deduction cannot exceed business income after non-home-office business expenses. If the regular method deduction is limited, you may carry forward the excess; the simplified method does not allow a carryforward. Depreciation is only allowed under the regular method and reduces your home’s adjusted basis.

Identity solutions for recordkeeping

Accurate records are essential regardless of the method you choose. Consider identity solutions that help protect access to sensitive tax files—such as password managers for unique, strong credentials and multi-factor authentication for your accounting software and cloud storage. Use consistent file naming for invoices, 1099s, utility bills, insurance statements, and receipts. Keep a simple floor plan or measurements for your office and total home area, along with dated photos that reflect exclusive business use. If eligible, requesting an IRS Identity Protection PIN can add a layer of protection to your tax filings by reducing the risk of unauthorized e-filing in your name.

Cybersecurity and online security for tax files

Cybersecurity matters when you store receipts and forms digitally. Enable online security safeguards like multi-factor authentication, device encryption, and automatic updates. Maintain at least one offline backup in addition to a reputable cloud service to prevent data loss from device failure or ransomware. Avoid emailing unencrypted documents with personally identifiable information; instead, use secure portals or encrypted sharing tools. Be cautious with unsolicited messages claiming to be from the IRS, as phishing can target tax data. Up-to-date antivirus, a modern browser, and a locked Wi‑Fi network help keep financial records protected when you prepare your deduction.

Data protection and privacy measures you’ll need

A workable data protection plan includes access controls, audit-friendly organization, and a retention schedule. Keep documentation that ties expenses to the home office: utility and insurance statements, mortgage interest or rent records, repair invoices, and a log of business use if applicable. For privacy measures, restrict who can access shared devices at home, use strong passcodes, and shred or securely dispose of outdated papers containing account numbers or addresses. When sharing documents with a tax professional in your area, confirm how files are stored and secured, and record what was shared and when. Organized, privacy-conscious records make it easier to substantiate either method.

Choosing a method year by year

You may choose the simplified or regular method each year based on what’s most advantageous and realistic for your recordkeeping. If you expect high eligible home costs or want to claim depreciation, the regular method could produce a larger deduction, provided you can track and allocate expenses accurately. If your office is small, costs are modest, or you prefer a streamlined approach without Form 8829, the simplified method may be more efficient. Consider how each method interacts with potential future home sale rules, since depreciation taken under the regular method can affect taxable gain calculations later.

Common pitfalls and practical tips

Avoid counting areas that are not exclusively used for business, such as guest rooms or shared family spaces. Re-check measurements and percentages annually, especially if you move or renovate. For indirect expenses, confirm that each cost category is eligible before allocating it to your office space. Keep a yearly summary that reconciles your chosen method, square footage, and the documentation you relied on. Strong cybersecurity and privacy practices protect those records, and consistent identity solutions reduce the risk of account takeover during filing season.

Conclusion Both the simplified and regular methods can be valid for self-employed taxpayers with a qualifying home office. The decision turns on space, costs, documentation comfort, and whether depreciation is useful. Clear eligibility, organized records, and secure data handling help ensure that whichever method you select is accurate, defensible, and aligned with your business needs.