Building Your Business Business Taxes Tax Filing for Your Home-Based Business By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on August 25, 2022 In This Article View All In This Article Meet the IRS and Test for Use of the Space How To Complete Form 8829 Yourself The Bottom Line Frequently Asked Questions (FAQs) Photo: Hero Images/Getty Images There's one important difference in tax filing between a home business and a business located outside the home: one form is used to calculate the space allocated to your business, so you can deduct the costs of using this space from your business tax return. Small business owners who work from their homes can claim a tax deduction for business use of the home, on Form 8829. To complete Form 8829, you will need to gather some paperwork for the calculation. Key Takeaways Business owners who work from home (and whose home workspace qualifies), can claim a percentage of household expenses, like mortgage payments and utilities, as an expense on their business tax return.To claim business use of home expenses, taxpayers must first calculate the percentage of their home dedicated for home-based business use.The form is easy to fill out, but you will need to collect all the relevant household expense details beforehand. Meet the IRS and Test for Use of the Space Before you begin to gather the paperwork to complete this form, you must be sure that the area or areas of your home meet the strict IRS use test. This area must be your principal place of business, and it must be used both regularly and exclusively for business purposes. Note The IRS says your home workspace will qualify as your principal place of business it meets two criteria:You use the space exclusively and regularly for administrative or management chores of your trade or business.You don't have another location where you carry out substantial administrative or management activities for your trade or business. If you don't use this area regularly, or you use this area of your home for anything other than business, even if that use is only once or twice a year, it doesn't meet the "regular and exclusive use" test, and the space cannot be used as a tax deduction. How To Complete Form 8829 Yourself You may be able to use the simplified method for calculating your home space deduction. If you have a small space (300 square feet or less), you can do a simple calculation to get the amount of the deduction. The calculation is $5 a square foot times the square foot area, up to 300 square feet. If you can't do the simplified option or you don't feel comfortable completing Form 8829 yourself, gather up all of the required information and take it to your business tax preparer. To complete Form 8829, you will need to have an estimate of your business income, so you should have a rough estimate of your Schedule C net income for your small business taxes before you begin. Note Unfortunately, if you work from home for someone else, you cannot claim a deduction for business use of your home. Information You'll Need for the Percentage Use of Home Calculation Your first task is to calculate the percentage of your home that is used for your business. To calculate the percentage use, you will need to know: The total square footage of your homeThe total square footage of the area or areas you use for business purposes Use these areas to get a percentage of home use. For example, if your home is 2,000 square feet and the business-use area is 200 square feet, the area used for your business is 10%. You will be using this percentage for expenses below. Home Expenses To Gather for the Calculation You will need to gather documents to substantiate your use of your home home business expenses for the year: Mortgage interestProperty taxesDocuments to substantiate any casualty lossesHomeowner's insurance costsHome rent expensesExpenses for repairs and maintenanceUtilities, including water/sewer, electricity, gas, trashOther home expenses, like internet service Gather up all of this paperwork before you start working on Form 8829, or take it to your tax preparer. Adding Form 8829 to Your Business Tax Return Once you have completed the form, you add it in the appropriate place on your business tax return. For Schedule C, you add the total amount of the deduction on Line 30. The Bottom Line A business needs a place to be, even an online business. And the expense for that place is a legitimate business expense, deductible on your business tax return. Form 8829 is where you (or your tax preparer) will collect the details and calculate the deduction. Frequently Asked Questions (FAQs) What can I deduct if I run my business from home? Expenses you can deduct for business use of your home include the business portion of mortgage interest, property taxes, rent, casualty losses, insurance, utilities, and maintenance and repairs. Note that you cannot claim the entirety of these expense, just the percentage of your home dedicated to business use. What qualifies as a home business? The Internal Revenue Service has a two-part test to qualify a space in your home as a legitimate place of business, for tax purposes. First, the space set aside for business use must be exclusively for business. A spare bedroom you use for administrative work can't also double as your workout room. Second, the space must be your principal place of business. You can't have another office somewhere where you also carry out administrative or other tasks related to your business. Updated by Lars Peterson Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "About Form 8829." Internal Revenue Service. "Instructions for Form 8829." Internal Revenue Service. "Instructions for Schedule C." Internal Revenue Service. "Here’s What Taxpayers Need To Know About the Home Office Deduction." Internal Revenue Service. "Topic No. 509 Business Use of Home."