Being able to deduct part of your rent, insurance, and utilities is a one the biggest benefits of claiming the home office deduction. This deduction is often misunderstood as a "red flag" that catches the attention of IRS auditors.

It's true that the IRS doesn't like it when people claim purely personal expenses as a tax deduction. But with so many taxpayers setting up home-based businesses or telecommuting, this deduction is no longer the red flag it used to be. Nevertheless, you should make sure that you meet the various qualifications to take the deduction.

This deduction works most effectively for people who operate a business out of their home. The deduction is less beneficial for employees who telecommute, since how much benefit the employee will get depends on whether they can itemize or not.