Who Qualifies for Work From Home Tax Deductions?
The COVID-19 pandemic has forced many employees to work from home for safety and health reasons. Fortunately, things have started to go back to regular programming in recent months.
However, as the tax season comes around, you may be wondering if you qualify for any work-from-home tax deductions.
The short answer is: Possibly
Let’s discuss how this could possibly work to your advantage and what you need to do.
Eligibility
Before 2018, employees could claim a home office deduction if their employer required them to work from home, even if they had another workplace. However, recent tax laws implemented for tax years after 2018 and onward required that the home office be used “exclusively and regularly” for business activities.
This means that taxpayers who are working as employees from home due to the coronavirus pandemic may not be able to deduct expenses related to their at-home work setup. Only those who are self-employed or business owners can claim the home office deduction if they use their home as their principal place of business.
This would include, for example, real estate agents and consultants who meet with clients in their homes. If the company you’re working for shut down during the pandemic and you switched to freelancing, you’re also qualified for a deduction.
To qualify, the portion of the home used for business must be clearly delineated and must be used regularly and exclusively for business purposes, e.g., holding client meetings, conference calls, and so on.
Deductions
Form 8829, which is used to figure the deduction for expenses of a home office, has been revised for 2020. The main change is that the maximum deduction for depreciation of business equipment placed in service in 2020 is increased from $1,500 to $3,000.
The IRS says that you may be able to deduct certain expenses of operating your home if you use part of your home exclusively and regularly for business purposes.
To qualify, your home office must be:
Used exclusively and regularly for business. This means you can’t use the space for anything else, like watching TV or working out.
Your principal place of business. This is where you conduct the majority of your business activity.
A separate structure is not attached to your home. This could be an outbuilding, like a shed or garage, or a conversion of part of another room using shelves, partitions, or other methods to create a specific area for business use.
Claims
If you meet the above criteria, you can deduct a portion of your mortgage interest, insurance, utilities, and repairs as business expenses on your federal tax return. This deduction is based on the percentage of your home used for business.
For example, if your home office is 200 square feet and your home is 2,000 square feet, you can deduct 10% of your mortgage interest and insurance as a business expense.
You can also deduct the cost of business-related improvements to your home office, such as painting, repairs, carpeting, and office furniture. The deduction is taken as depreciation over a period of years.
Takeaway
If you were working from home at any point during 2020 and 2021, you may be able to take advantage of some valuable deductions for your 2021 taxes and 2022 taxes. However, take note that this benefit is only for those who are self-employed since employees cannot deduct their home office expenses.
Once you’ve established that your home office qualifies, you can start itemizing your deductions. If you’re not sure how to go about the process, enlisting the help of a professional tax planning and financial service company like us here at CORE Group can help ensure you get the most out of your deductions.
Don’t care to mess with the lingo, and the verbiage, or want to pull out your hair with all the Tax Stress? Contact Core Group today so we can better access your business needs and get you back to running your business, not your taxes. Let’s continue to #growprofitably
Core Group
(866) 579-7104