If you work at home and don’t claim the home office deduction, you could be flushing money down the toilet. For the self-employed, a home office deduction can save you hundreds of dollars on your taxes.

When claiming this deduction, you may claim things such as your mortgage and your utilities. But it’s important to realize that there are some very specific rules that must be followed, according to the IRS. The simplest way to remember them is with the letters “P” & “E”.

  • “P” or Principal – The space you use in your home must be your primary or principal place of business in order to qualify.
  • “E” or Exclusive – This space must also be used exclusively for work-related activities.

A common question is whether or not you are allowed to claim this deduction if you are an employee of a company, but you sometimes work at home or telecommute. The answer here is no when it comes to a deduction. You used to be able to, but the laws have changed and eliminated this circumstance.

If you do qualify for the home office deduction, here is a simple way to calculate your deduction: take $5 per square foot and multiply it by the number of square feet your office occupies, up to a 300 square foot max.

If you work from home, are self-employed, and qualify for the home office deduction, claim it and watch your tax bill go down.