Running a business from home has real advantages for retirees - no commute, low overhead, and a schedule you control. It also comes with some tax responsibilities that are worth understanding upfront, because the records you keep throughout the year determine what you can deduct when tax time arrives.
This article covers the basics: what home-based business deductions are available, what the IRS requires you to document, and how to keep things manageable without a bookkeeper.
What Tax Deductions Are Available to Home-Based Business Owners?
The Home Office Deduction If you use a portion of your home regularly and exclusively for business, you may be able to deduct expenses related to that space. This applies whether you own or rent your home.
The IRS offers multiple methods for calculating this deduction:
- Simplified method: Deduct 5 dollars per square foot of your dedicated workspace, up to 300 square feet (maximum 1,500 dollar deduction). Simple to calculate, no depreciation tracking required.
- Regular method: Calculate the actual percentage of your home used for business and apply that percentage to eligible home expenses - mortgage interest or rent, utilities, insurance, and repairs. More paperwork, but potentially a larger deduction.
The key requirement for either method: the space must be used regularly and exclusively for business. A desk in a room that also serves as a guest bedroom generally does not qualify. A dedicated office or workspace that is used only for business does.
Business Mileage If you drive for business purposes - visiting clients, picking up supplies, attending business-related events - you can deduct those miles. The standard mileage rate for 2026 is 72.5 cents per mile. Commuting from home to a regular place of business does not count, but most home-based business travel qualifies.
To claim this deduction you need a mileage log: date, destination, purpose, and miles driven for each trip. A simple notebook or a free mileage tracking app works fine.
Other Common Deductions Additional deductions available to home-based business owners typically include:
- Business supplies and equipment
- A dedicated business phone line or the business portion of your cell phone bill
- Internet service (the business-use portion)
- Professional subscriptions or software used for the business
- Business insurance
- Marketing and advertising costs
- Fees paid to professionals such as accountants or attorneys for business matters
What Records Does the IRS Require?
The IRS expects you to be able to document any expense you deduct. In practice, that means keeping:
- Receipts or invoices for business purchases
- Bank and credit card statements that show business transactions
- A mileage log if you are claiming vehicle expenses
- Records showing the square footage and exclusive business use of your home office
You do not need an elaborate system. A dedicated folder (physical or digital) where you collect receipts, a simple spreadsheet for tracking income and expenses, and a mileage log are enough for most home-based businesses. The goal is to have documentation you can point to if the IRS ever asks.
How Do Self-Employment Taxes Factor In?
As a home-based business owner, you are self-employed. That means you will owe self-employment tax on your net profit in addition to income tax. The deductions above reduce your net profit, which reduces both. See our article on self-employment taxes for a full explanation of how that works.
Keeping It Simple: Practical Tips
- Open a separate bank account for the business. It makes tracking income and expenses much easier and keeps your personal finances clean.
- Record expenses as they happen rather than reconstructing them at tax time.
- Set aside a percentage of each payment you receive to cover taxes. A common rule of thumb is 25 to 30 percent, though your actual rate will depend on your total income and deductions.
- Consider working with a CPA for your first year. The cost is often worth it for the guidance on what to track and what to deduct.
Want to Go Deeper?
If you are in the early stages of starting a home-based business, the team behind SeniorAnswerDesk has written a plain-English guide for first-time entrepreneurs that covers the most common first-year pitfalls - including tax surprises - in straightforward terms.
Don't Fail in Year 1: The Plain-English Startup Survival Guide - Available at malboe.gumroad.com/l/dontfaily1
It is the same practical, jargon-free approach you will find throughout this site.
Where to Learn More
- IRS - Home Office Deduction - irs.gov/businesses/small-businesses-self-employed/home-office-deduction Full IRS guidance on the home office deduction, including both calculation methods and eligibility rules.
- IRS - Standard Mileage Rates - irs.gov/tax-professionals/standard-mileage-rates Current mileage rates for business, medical, and charitable driving.
- IRS - Recordkeeping for Small Businesses - irs.gov/businesses/small-businesses-self-employed/recordkeeping What the IRS expects you to keep and for how long.
Disclaimer: This article provides general information for educational purposes only and does not constitute tax or financial advice. A small business advisor or CPA can help you apply these steps to your specific situation.