CAN YOU DEDUCT WORK-FROM-HOME EXPENSES?
Can You Deduct Work-From-Home Expenses?
Across the nation, remote work has boomed during the pandemic. And as the workplace gradually returns to “business as usual,” more employers than ever are opting to make a permanent switch to hybrid or full-remote work. With work-from-home emerging as the new normal, it’s only natural for taxpayers to weigh the tax implications of home offices.
In this article, we hope to illuminate the world of work-from-home deductions, who is eligible to claim them, and how they can be calculated.
Who Is Eligible for the Home Office Deduction?
Before 2018, most W2 employees could claim certain home office tax deductions. However, since the 2018 tax year, the rules have tightened significantly. As a result, home office tax deductions are no longer available to W2 employees.
However, self-employed individuals who conduct their business at home are still eligible for the home office deduction, with a few exceptions.
What Does an Eligible Home Office Look Like?
A qualifying home office may consist of space within an apartment, condo, or home, whether owned outright or rented by the taxpayer. Freestanding structures such as outfitted sheds, barns, and detached studios are also eligible. However, temporary lodging such as a hotel or motel rooms does not qualify.
To qualify as a deductible home office, the space in question has to meet several criteria, the first being the “regular and exclusive use” requirement. To meet this requirement, you must use the space exclusively for conducting business. If you conduct your business in your kitchen, you probably won’t be able to claim the home office deduction.
Of course, like most things tax, there are exceptions to the rule. For example, if you use your home office to store business inventory or you are a licensed care provider for children, the disabled, or seniors (defined as 65 years of age or older), the regular and exclusive use requirement loosens.
In addition, your home office must be your “principal place of business,” meaning that the bulk of your administrative duties takes place within that space. If you conduct most of these duties away from home and only utilize your home office as a secondary workspace, you will not be able to claim the home office deduction.
What Home Office Expenses Can Taxpayers Deduct?
While using Schedule C to outline business expenses, self-employed taxpayers with qualifying home offices may be able to deduct a portion of their mortgage interest, homeowner’s insurance, utilities, property tax, or other home-related expenses. In addition, you may be able to deduct office furniture and equipment such as printers, desks, chairs, cabinets, and modems — if you use the furniture and equipment exclusively for business.
How Is the Home Office Deduction Calculated?
Qualifying taxpayers can choose one of two methods to calculate their home office deduction: the standard method or the simplified method. In some cases, one approach is better than the other — and you can change the method used from year to year.
The Standard Method
The more involved of the two methods, the standard method of calculating your home office deduction consists of keeping meticulous, detailed records of each home office expense and calculating your annual total home office expense. When using this method, it is essential to be thorough — one misclassification or error could spell disaster in the event of an audit.
The Simplified Method
If you do not have the time for meticulous record-keeping, the simplified method may be your best bet. Although your deduction is limited to 300 square feet of home office space and you cannot deduct depreciation, the simplified method is, well, simple; just multiply the square footage of your home office space by $5. As previously mentioned, the simplified method is limited to just 300 square feet — because of this, the maximum possible deduction using this method is $1500. If you would like to claim more, you must use the standard method.
Regardless, it is always helpful to know what your deduction would be with both methods so you can choose the maximum deduction for your tax situation.
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