The home office tax deduction is real. You’ve probably never used it, but you’ve heard of it because your buddy said his former college roommate who started a web design studio in his basement uses it. But whether you work at home for someone else or for yourself, you may qualify for this deduction.

Your Home Office’s Size

The math involved is based on what percentage of your home is used for work. So if you use a 10 x 12 spare room exclusively and regularly as an office, you’re using 120 square feet for work. Let’s say your house is 2400 square feet total. So divide 120 by 2400, and you’ll see that your workspace is .05 or 5% of your home.

Self-Employed At Home vs Employee at Home

If you’re self-employed, this deduction should be no problem, if you are employee and your employer doesn’t have an office for you to report to and has asked you to work at home, you can qualify. But if you work at home because you like working in your home and hate riding the subway, you don’t qualify.

Some people worry that attempting the home office deduction will get them ‘red flagged’ and could lead to an audit, which is not true as a matter of fact if you have the proper documentation–take it and don’t look back.”

If you decide to take the home office deduction, this might lead you to consider taking deductions for home office expenses. For tax purposes, these expenses come in two flavors. Direct expenses pertain to the workspace you are claiming, and include things like painting your office or repairing damage to it. Indirect expenses deal with your whole house. For example, you pay an electrical bill for your entire house, not just the home office, so you can only take a partial deduction. This is another situation where having a separate structure might make your claim more simple.

Self-Employed Tax Deduction

In general, the home office deduction is easier to justify if you’re self-employed, but if someone else employs you, remember that working at home must be for their convenience. A separate structure is easier to justify than a room inside your house, but a room inside is fine if it’s used exclusively and regularly for your business. The main thing is to keep good records. Solid documentation will justify your claim and help you through an audit just in case you’re that 1%.