Schedule C vs Form 8829 - How to write off home office expenses correctly?

Thanks for the explanation! I'm in a similar situation but have a question - if I use a separate room entirely for my business (like a dedicated home office), would I still calculate it the same way? Also, does internet count as a utility for this purpose or should I put that somewhere else on Schedule C?

If you use a separate room entirely for business, you would still calculate it the same way, but your percentage would be based on the square footage of that room divided by the total square footage of your home. This often results in a higher percentage than a partial-room setup. Internet can be handled in two ways. If it's used for both personal and business purposes, you should include it with your utilities on Form 8829 and apply your business percentage. If the internet is used exclusively for business, you could potentially deduct 100% of it directly on Schedule C as a utility expense, though this is uncommon in home situations.

Does this work if I'm renting vs owning? My landlord pays for water and trash, but I pay electric, gas and internet. Not sure how to handle the split with partial utilities.

I've heard of AI tax tools but I'm skeptical. How does it actually know what percentage of your home to allocate? Do you have to measure and input the square footage yourself?

Yes, it absolutely works for renters! You just enter which utilities you pay for, and it guides you through allocating those expenses based on your business use percentage. For utilities your landlord covers, you don't have to worry about those since you're not paying them directly. For square footage calculations, you do need to measure your space and enter the total home square footage and business area square footage. The system then calculates the percentage for you and applies it correctly across all the relevant expenses. It also helps you understand which expenses should be 100% business versus those that need to be proportionally allocated.

Wait, how does this actually work? Is it just another waiting service or does it somehow get you priority in the IRS queue?

Yeah right, nobody gets through to the IRS that fast. This sounds like a scam to me. The IRS is notorious for long wait times - how could a random service possibly change that?

It doesn't give you priority in the queue - what it does is handle the waiting for you. Once you submit your request, their system calls the IRS and navigates through all the prompts, then waits on hold so you don't have to. When they finally reach an agent, you get a call back to connect with them directly. It's definitely not a scam. The service is legitimate and has helped thousands of people connect with the IRS. The reason it works is because they're essentially waiting on your behalf, letting you go about your day instead of being stuck on hold for hours. I was skeptical too until I tried it and got connected with an actual IRS agent who answered all my home office deduction questions.

Thanks for mentioning this! How does the simplified method compare for deduction amount though? I'm in a high cost area (SF Bay) where my rent is crazy high, so I'm thinking the actual expense method might give me a bigger deduction?

You're right to consider that. In high cost areas like SF, the regular method with Form 8829 will almost always give you a larger deduction. The simplified method is capped at $1,500 maximum (300 sq ft × $5), so if your actual expenses would give you more than that, you're better off using Form 8829. Just keep in mind that the regular method requires more detailed record keeping. You'll need documentation for all home expenses and you'll need to be more precise about the square footage calculations. But in your case, it's probably worth the extra effort since rent in the Bay Area is so high - you could potentially get a much larger deduction.

Is this really enforced though? How would the IRS even know if I sometimes use my "home office" computer for personal stuff?

@TommyKapitz is absolutely right about the exclusive use requirement. The IRS does audit home office deductions, and if they find evidence that the space isn't used exclusively for business (photos, witness statements, etc.), they'll disallow the entire deduction plus penalties and interest. Even having a TV in the room or using it for storage can disqualify it. If your setup is in your bedroom like the original poster, you'd need to physically separate the work area or consider the simplified method instead, which has less strict requirements but a lower deduction limit.

This is really helpful advice about keeping detailed records throughout the year! I'm just getting started with my freelance business and I think you're right about using the simplified method initially. Quick question though - if I start with the simplified method this year, am I locked into that for future years or can I switch to Form 8829 once I get a dedicated office space set up? Also, do you have any recommendations for what specific records to keep beyond just the monthly expense tracking?