You can avail of home office deduction when you own and operate a business from your home. Your home could be an apartment, condominium, or similar structure. It also includes unattached garages, studios, and greenhouses used for work purposes on the property. To qualify for the deduction, it’s essential to be self-employed like rideshare drivers or partners in a firm. But it is not for employees who receive W2s from their employers. You may also qualify for side gigs where other employers pay them too.
Am I Eligible For Deduction If I Am Working From My Home?
As an employee who works remotely rather than as an employer or business owner, you are not entitled to take advantage of this tax break (though some states still allow it). Home office deduction was applicable before the (TCJA) Act was passed on DEC.22, 2017. However, with TCJA reform taking effect in 2018 through 2025, there will be no more itemized deductions for unreimbursed employee business expenses.
So, do You Qualify For A Home Office Deduction?
According to the IRS, there are two necessary conditions for claiming the deduction. If you conduct your business regularly at home, a portion of your house must be the location of your principal business place. Suppose you are a rideshare driver but do not have office space. In that case, you can deduct any expenses paid using this as a work office – such as mortgage interest, cable bills, and utility costs – so long as it is used exclusively and routinely for administrative tasks only because there are exceptions to what qualifies.
Claiming For Home Office Deduction
- Simplified method – The simplified process is an easy and quick way to determine your home office deduction, which can be done by multiplying the total square footage of your office by $5. You will only be able to have a maximum of $1,500 (300 square feet) deducted from taxes using this method.
- In the regular method of tax deductions, your deductions are calculated based on percentages of your related and home office expenses. A taxpayer may claim rental payments, mortgage interest, utilities, insurance costs, etc., to the extent permitted by the IRS. To determine a regular deduction method, first, divide your home office square footage by your home’s total square footage to obtain an allowable percentage. Then multiply that number with what you are allowed under the method (i.e., if you have 200 sqft and 1000 sqft, it would be 20%). You do not have any maximum claim limit like other methods(simple).
Deductible Home Office Expenses Include:
Business homeowners may deduct home office expenses from their taxes if they show that the space is used for business purposes. These include:
- Direct costs of painting, repairs, and other work done in a designated area of your home where you do business are deductible. (the “business part” of your home).
- Business percentage share or indirect expenses like rent, dwelling insurance, utilities, and general repairs in running an entire house are also deductible. You can calculate this by any reasonable method; make sure it’s consistent each year!
- You cannot claim landscaping or lawn care as a deduction unless it has some connection with business activity – such as being in charge of large fields when selling mowing services to potential clients.
For Storage Or Giving Child Care Is This Tax-Deductible?
- If you own part of your house, you can use it to provide daycare services to children, seniors, or persons with disabilities. You will be eligible for this tax break if you meet all applicable licensing requirements for your state and local area.
- You might also store product samples or inventory you sell in your business at home. What matters is that the space used is solely yours. This would allow you a deduction if it were only used as an office occasionally. The location has to be the principal place of work to get this exception.
Claiming The Home Office Deduction
If you choose the simplified option, use the “Simplified Method Worksheet” from Schedule C and enter this value in line 30 of Schedule C. However, only one can be calculated using this simplified method by deducting multiple offices. Regular methods must be used for all others. To claim deductions for a partnership or multi-member LLC, complete Form 8829 and attach it through a copy to your tax return along with other completed forms such as 1040, depending on what applies to each situation, respectively.
Expenses You Can Claim For Deduction
The IRS distinguishes between three types of expenses- direct, indirect, and unrelated.
- Direct Expenses are things that one can only use for your office or business. These are fully deductible.
- Indirect Expenses occur when a certain percentage of something is related to your home [and is thus not exclusively used in the office]. The amount should equal the proportion of space in one’s house designated as an office- if 10%, then 10%.
- Unrelated expense means it has nothing to do with either work or where you live. These cannot be deducted. Examples include lawn care, painting one’s outside walls/house exterior, and renovating areas inside the house unrelated to work done there.
Can Your Home Office Deduction Be Reimbursed?
Many telecommuting employees will lose a valuable tax break under the new rules. Talk to the employer about setting up an accountable plan that can help offset the loss of home office deduction. The accountable plan is a method by which employers reimburse their employees’ out-of-pocket business expenses and it’s outlined in Publication 463 from the IRS. Generally speaking, all these requirements must be met:
- Reimbursable expenses must have a business connection (you need receipts).
- The employee needs to provide adequate accountings for their deductibles within 60 days after incurring them (i.e., submitting expense reports and copies of receipts).
- Excess reimbursements that employers paid should also be returned within 60 days if they exceed what was due when it was incurred.
If you’re self-employed and have an office at home, check out the home office deduction to see if you can deduct some of your expenses by saving money on taxes. You can use Flyfin tax calculator for this purpose. Just make sure that your office is up to IRS standards and keeps a good record of what you buy to back up the deductions.