If You Work From Home are You Eligible for a Tax Deduction?

Tax Deduction

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When you own and run a business out of your house, you are eligible for the home office deduction. Your house can be an apartment, condo, or other comparable building. On the site, it also comprises detached garages, studios, and greenhouses utilized for business reasons.

It is necessary to be self-employed, such as rideshare drivers or partners in a business, to be eligible for the deduction. But, it doesn’t mean workers who get W2s from their employers. Additionally, you can be eligible for side jobs with remuneration from other businesses.

Do I qualify for a deduction if I work from home?

You are not eligible to benefit from this tax reduction as a remote employee as you are neither an employer nor a company owner (though some states still allow it). Before the (TCJA) Act was approved on December 22, 2017, the home office deduction was allowed.

However, itemized deductions for unreimbursed employee business expenditures will no longer be allowed under the TCJA legislation, which will go into effect in 2018 and last until 2025.

I take it you’re eligible for a home office deduction?

The IRS states that there are two requirements that you need to meet to be eligible for the deduction. If you run your business out of your home frequently, you must designate a piece of your home as your main office space.

Let’s say you drive for a ridesharing company but do not have an office. There are exceptions to what qualifies, but in that instance, you can write off any expenditures incurred using this as a business office, such as mortgage interest, cable bills, home insurance, and electricity charges, as long as it is used solely and regularly for administrative chores.

Claiming a deduction for a home office

  1. Using the simpler approach, which involves increasing the total square footage of your office by $5, you may calculate your simplified home office deduction quickly and easily. Using this strategy, you may only deduct a maximum of $1,500 (300 square feet) off your taxes.
  2. Your deductions are determined using a percentage of your related and home office costs when using the usual tax deduction technique. To the degree that the IRS permits, a taxpayer may deduct expenses such as rent, mortgage interest, utilities, insurance fees, etc. Divide the area of your home office by the entire area of your house to arrive at an allowed percentage, which will be used to decide the regular deduction method. Then double that figure by the amount permitted by the technique (i.e., 20% if you have 200 square feet and 1000 square feet). Unlike other methods, you do not have a maximum claim limit (simple).
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Deductible business costs at home include:

If a business homeowner can prove that the room is utilized for business reasons, they may be able to deduct home office costs from their taxes. These consist of:

  • You may deduct the direct costs of painting, making repairs, and doing other work in a specific portion of your house where you do business. (Your home’s “business section”)
  • Indirect costs incurred by a business, such as rent, utilities, homeowners insurance, and basic maintenance for maintaining an entire home, are also deductible. This may be calculated using any sensible technique, just make sure it’s the same every year!
  • Lawn care and landscaping cannot be deducted unless they are related to a company activity, such as managing expansive fields while offering potential customers mowing services.

Is this tax deductible for storage or child care?

You may utilize a portion of your home, if you own it, to run a daycare center for kids, elders, or people with disabilities. If you satisfy all the licensing criteria for your state and local jurisdiction, you will be qualified for this tax deduction.

You might keep stock from your business, such as samples of products, at home. The fact that the area is exclusively yours is what matters. If it were only infrequently utilized as an office, you may claim a deduction. To qualify for this exemption, the location must be the sole place of working.

Claiming the deduction for a home office

Use Schedule C’s “Simplified Method Worksheet” to input this value on line 30 if you decide to go with the streamlined option. However, by subtracting many offices, the calculation for only one may be made.

For all others, normal protocols need to be followed. Fill out Form 8829, depending on whether it pertains to a partnership or a multi-member LLC, and attach a copy to your tax return along with other forms you’ve completed, including Form 1040.

Expenses that you can deduct

The direct, indirect, and unrelated expenditure categories are separated by the IRS.

  • Things that one may only utilize for their workplace or business are considered direct expenses. They’re entirely deductible.
  • When a portion of a cost is tied to your home [and is not used only at the business], those costs are referred to as indirect expenses. In other words, if 10% of one’s home is designated as an office, then 10% of the amount should be allocated to that area.
  • An unrelated cost is one that has no relevance with the location of work or residence. These are not deductible. Examples include maintaining a lawn, painting a person’s external walls or home, and upgrading rooms within a house that are unrelated to the job being done there.
  • You might qualify for the moving expenses deduction or the business vs commuting miles deduction 
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Can you get your home office deduction paid back?

Under the new regulations, many telecommuting workers would lose a significant tax incentive. Discuss creating a responsible strategy with the employer to assist make up for the loss of the home office tax deduction.

The accountable plan, which is described in Publication 463 from the IRS, is a procedure through which companies compensate their workers for out-of-pocket business costs. In general, all of these conditions must be satisfied:

  • Reimbursable costs must be related to business (you need receipts).
  • Within 60 days of incurring them, the employee must produce acceptable accountings for their deductibles (i.e., submitting expense reports and copies of receipts).
  • If the amount of the reimbursement is greater than what was owed at the time it was incurred, the employer must refund the excess within 60 days.

If you are self-employed and have an office at home, determine if you qualify for the home office tax deduction to write off part of your costs and reduce your tax liability. For this, FlyFin’s has just what you need to utilize, which is the 1099 tax calculator.

Just make sure that your workplace complies with IRS requirements and that you keep thorough records of your purchases to support your deductions to avoid an IRS audit notice.

Tax Deduction article and permission to publish here provided by James Noah. Originally written for Supply Chain Game Changer and published on January 19, 2023.
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