The Deduction That Could Increase Your Risk Of An IRS Audit

Audits from the IRS are no picnic. The Internal Revenue Service has a job to do, and that often involves targeting people they think are gaming the system for a more intensive inspection. The IRS can ask for clarification, adjust your tax filing for you (and allow you to either accept the changes or show proof that you had the correct figures to begin with), or go all in with an audit of your finances. They are rare, but the IRS is more likely to audit taxpayers whose returns have certain red flags. 

One such problem area can come from your deductions. Many taxpayers take the standard deduction and call it a day. This is the right approach for plenty of people, but under certain circumstances, you'd be foolish not to itemize your deduction and gain access to a larger offset on your gross tax burden. If you've shouldered significant medical bills, paid a heap of cash in mortgage interest, or donated a lot of goods in the last year (or all three, among others), itemizing this offsetting feature provides an important tax break that you should know and use.

The home office is one area that can be a significant game-changer. If you are self-employed and work from home, you may have the ability to deduct a number of important (and potentially large) expenses. But there are some common-sense limits to calculating these tax breaks, and more than a few rules that govern how you should go about the task.

Because it can get complicated in a hurry, the IRS may be more likely to eye you if home office deductions show up on your tax filings. This is because it's easy to get the calculation wrong, and many people seek the deduction despite not being eligible for it. Some workers may also look to expand the area of their home they claim as a workspace, an approach that can result in potentially significant consequences. 

There's a simplified method of calculating your home office deduction, which can serve as a good starting point for those considering this addition to their taxes. The calculation centers on the size of your home office space. After measuring and determining the square footage, you'll deduct $5 per square foot, up to a maximum value of $1,500 (or the equivalent of 300 square feet).

If you aren't going to calculate usage with the simplified method, you'll instead need to establish the percentage of the home's total space that's used for business purposes. This figure is then used to calculate your indirect expenses. For instance, if your working area occupies 10% of your home's total square footage, you can deduct 10% of costs like your electricity bill and mortgage payments. The rest of the expense benefits your home rather than your workspace, so it can't be deducted. Direct costs (materials, equipment, and services like printer ink, a desk chair, and essential software) can be leveraged in full. Deductions are only valid if the portion of the home is legitimately the user's primary place of business and is used exclusively for these tasks. That can create a grey area for many workers, significantly increasing the risk of an audit.

Beyond the inherent stickiness of taking a home office deduction, a recent trend in the working environment that Americans maintain has complicated things further. Millions of people are still working from home in the post-pandemic employment landscape. In 2022, roughly 27% of the American workforce spent at least some time working from home (down from almost 50% in December 2020). That number is nearly 33 million in 2025 (or 22% of the workforce). Similar percentages, but smaller aggregate numbers for part-time remote work were seen in the years before this public health crisis, but full-time distance employment was much less common. Between 2019 and 2021, this figure rose from 5.7% of the workforce to almost 18%.

With more people making a part of their home a primary place of business, it's fair to assume that there would be a corresponding uptick in the volume of home office deductions tacked onto tax filings. But the rules are clear, even if you don't set foot in the office all year, if you are a W-2 recipient, then taking this deduction isn't possible. That won't stop people from believing they can make these write-offs. With an expectation for increased inaccuracies, don't be surprised if taking this deduction (for the first time, especially) comes with added interest from the government.