How to Take Advantage of the Home Office Deduction
If you’re a business owner in Phoenix, Arizona working from home, the home office deduction is one of the most overlooked yet powerful tax strategies available. At Cool Wealth Management, we help entrepreneurs and self-employed individuals reduce taxes legally—and the home office deduction can provide meaningful savings if used correctly. Whether you're operating a full-time business or a part-time side hustle, knowing how to qualify and calculate this deduction could help you keep more of your hard-earned money.
What Is the Home Office Deduction?
The home office deduction allows you to deduct certain expenses related to the business use of your home. This applies whether you own or rent your home. If part of your residence is used exclusively and regularly for business purposes, you may be eligible to deduct a portion of rent, mortgage interest, utilities, property taxes, insurance, repairs, and depreciation.
Who Qualifies?
To qualify for the home office deduction, you must meet two key requirements:
Exclusive use – A portion of your home must be used only for your business. It can’t double as a guest room or a personal space.
Regular use – The space must be used regularly, not occasionally, for your business operations.
There are two common scenarios where this applies:
You run your business primarily from your home.
You have a home office that serves as your principal place of business, even if you work occasionally outside the home.
Two Ways to Calculate the Deduction
The IRS allows you to choose between two methods for calculating your home office deduction:
1. Simplified Method
Deduct $5 per square foot of your home office space, up to 300 square feet.
Maximum deduction: $1,500 per year.
No recordkeeping for actual expenses is required.
2. Regular Method
Calculate the percentage of your home used for business.
Apply that percentage to actual costs like utilities, rent, mortgage interest, insurance, repairs, etc.
Requires more documentation, but may yield a larger deduction.
For example, if your office is 200 square feet and your home is 2,000 square feet, 10% of your home expenses could be deductible under the regular method.
What Can You Deduct?
Under the regular method, eligible expenses may include:
Mortgage interest or rent
Property taxes
Utilities (electricity, water, gas, internet)
Homeowners or renters insurance
Repairs and maintenance
Depreciation (if you own the home)
Keep in mind: only the percentage of these costs that corresponds to your business use is deductible.
Common Pitfalls to Avoid
Shared space disqualification – If you occasionally use your home office space for personal use, you may not qualify.
Exaggerated claims – Be realistic about the square footage. Overestimating can raise red flags with the IRS.
Lack of records – If you're using the regular method, you need to track expenses carefully.
Does It Trigger an Audit?
Claiming the home office deduction used to be a red flag, but that's no longer the case—especially post-2020 with the rise in remote work. As long as you follow the rules and maintain proper documentation, it’s a legitimate and widely accepted deduction.
Final Thoughts
At Cool Wealth Management, we help entrepreneurs and self-employed professionals in Phoenix and across Arizona take advantage of tax strategies like the home office deduction. If you're looking to pay less in taxes and keep more of what you earn, it's crucial to plan ahead and document properly.
Want help maximizing your deductions?
Book a call with us today and let’s make sure you’re not leaving money on the table.
