Hi... I was an employee working from my home office for 3 months this year and received a W2. I then changed jobs and became an independent contractor, still working from same home office, and received a 1099 for work done in November and December. How do I deduct home office expenses as an employee for 3 months *and* as an independent contractor for 2 months. Also, can I/would I want to "save" my deductions for all of my furniture and euipment until next year to offset 2011 tax year. Thanks for any help.

Be careful taking the home office. It's one of the biggest flags for an audit. Did you actually buy furniture and equipment last year? You have to either expense it then, or depreciate it. Do you have a separate phone number for business?

I wouldn't claim the home office at all for 2010. Read IRS.gov about the requirements.
You do need Schedules C and SE. At least come up with some expenses for working from home. And keep a mileage book for your car, for every trip you take.

I've been running a side business from my home for many years. I've never taken a home office deduction. As Joy said it greatly increases your chance of an audit for VERY little benefit,

The home office must be used ONLY for business purposes. You can only deduct the square footage proportion. So lets say you have a fairly typical 1200 sq foot house and your home office is a 15x15 room. This means you are using less than 20% of your home for the home office. So you can only deduct that portion of your costs. Plus, if you do take the deduction then 20% of your home will be considered commercial property when you sell.

Over all, its just not worth it.

The home office is valid and meets all requirements. I did buy the equipment in 2009. I know what I can deduct by using tax software, I just don't know how to separate my deductions for when I was an employee and now as contractor. I worked 1/2 of the year, all in my home office, so I need to take the deductions. Thank you for you answer... I appreciate your cautions and your time :)

I'm not sure if you fully understand what we are saying. Many people can legitimately take the deduction but would be well advised not to do so because of the pitfalls. Have you calculated how little difference the deduction will make?

You say you 'need to take the deductions.' You don't need to, and don't want to if they are under the standard deduction of 5700S/11400M.
Also, most people have a much smaller office per square foot of house than ScottGem's example. I use ~75 SQ' out of 1800, or 4%. As said, that becomes a capital gains quagmire if/when you sell the house. If the IRS sees you using your computer for any home use at all, it's all out the window, with penalties and interest. Computer, phone, you must have separate ones for personal use (you avoided answering that part). And the IRS says it must be for the 'convenience of the employer' and not just 'appropriate and helpful' for you.
Plus, you say you bought your furnishings in 2009? They won't like that; it's way before you started.
But go ahead, for the entire year, if you really think it's worth it.

Desk, chair, computuer, fax purchased in 2010. Separate phone/internet/computer for work only. Office used only for work. I will check on capital gains... thank you. If I cannot take the deductions, then nobody can. I am now contract status and am paying both halves of the tax. I am valid and want to take the deductions because they are set up for that purpose. I just do not know how to separate employee deduction for home office and as contract status, for separate companies.

Again, have you figured out how much taking the deduction will get you? Again, its not about being eligible for the deduction its about whether it is worth the consequences of taking the deduction.

You can take the cost of the separate phone and internet connections. That is separate from the home office deduction. The same goes with the purchase of the fax. The home office deduction allows you to deduct a proportional share of your home expenses; heating, electricity, taxes, etc. So, for example, if your home office is 10% of your square footage (and I agree with joy that is probably high) then all the deduction gets you is 10% of those costs deducted against your income. If you only used the home office for part of the year then you have to pro-rate.

Again, you need to do the math. I think, when you do, you will find that the it will make a minimal difference in your tax liability.

You need to sit down with a 1040, Schedule C, and Schedule SE. You don't separate deductions for when you were an employee from when you were self employed. They all deductions, period. But you do not get to take the standard deduction! Wanting to itemize because 'they are set up for that purpose' is not why you itemize; it's to pay less. And you can't 'save' expenses for next year! You can start depreciating now, that is it.

Many people in your situation buy software and work it both ways and file whichever is cheaper. Or pay a tax place this year and have them show you.
We don't even know if you are single or what your total deductions are.