The One Tax Deduction Every Freelancer Should Be Taking but Isn’t
To all freelancers and side hustlers out there: if you’re earning 1099 income, whether it’s designing logos, walking dogs, driving for Uber, or reselling sneakers online, there’s a good chance you’re leaving money on the table. There’s one deduction in particular that too many people ignore, not because they don’t qualify, but because they are unaware of it’s existence or have heard stories that have kept them away.
Let’s discuss the home office deduction.
But isn’t the home office deduction an IRS red flag ticket item? The IRS is greedy. They can and will attack for anything, but if done correctly, they’ll just be wasting their time. Times have changed, and so has the tax code. These days, if you’re self-employed and legitimately work from home, even just a few hours a week, you’re allowed to deduct the portion of your home that’s used exclusively and regularly for business.
Let’s be clear: The big must is that there Is a dedicated space to your work. The couch won’t cut it. But if you’ve got a desk set up in the corner of your spare bedroom and that space is only used for client work, bookkeeping, or creative hustle, you’re golden Ponyboy.
What can you deduct?
There are two ways to calculate the deduction:
1. Simplified Method: You take $5 per square foot, up to 300 square feet. So if your office is 100 sq ft, that’s a clean $500 deduction. No receipts required.
2. Actual Expense Method: This is where it gets juicy. You calculate what percentage of your home is used for business (business area/total home area), then deduct that same percentage of eligible home expenses; like rent, utilities, internet, homeowners insurance, and even a portion of your mortgage interest or property taxes if you own.
Example:
Let’s say your apartment is 1,000 square feet, and your office takes up 100 of those. That’s 10%. If you pay $2,000/month in rent, that’s $200/month you can write off plus 10% of your utilities, internet, and other direct expenses. Over the course of a year, this could easily add up to $2,500–$4,000 in deductions.
Who’s out of luck?
This is important: W-2 employees can’t claim a home office deduction, even if they work remotely full-time. This deduction is only for self-employed folks filing a Schedule C, people who run their own gig, even part-time.
So if you’re getting 1099 income, yes. If you’re a regular employee working from home, tough luck.
Bottom line
If you’re freelancing, side hustling, or running your own business, even from your kitchen table, take a hard look at the home office deduction especially if you’re paying the outrageous Denver rent prices. It’s one of the most powerful tools available to self-employed taxpayers, sadly which I’m seeing too many people miss out on this.
Need help figuring out how much you can deduct or how to prove your workspace qualifies?
That’s where I come in. Whether you’re in Denver, New Orleans, Miami or hustling online from anywhere in between, let’s make sure you’re keeping what you’ve earned.