Definition
A tax deduction for self-employed people who use part of their home regularly and exclusively for business. You can deduct a flat rate per square foot up to a cap (the simplified method) or the business-use share of actual costs like rent, utilities, and insurance. W-2 employees working from home do not qualify.
Why it matters
For freelancers who already pay rent, this converts a slice of an existing bill into a business expense that reduces both income tax and self-employment tax. The exclusive-use rule is the catch: a room used only for work counts, the kitchen table does not.
Example
A freelancer uses a 150-square-foot room in a 1,500-square-foot rental purely as an office. Deducting 10% of the $24,000 annual rent plus utilities yields roughly a $2,600 deduction, saving about $950 at a combined 37% income and self-employment tax rate.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.