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Expectation vs. Reality: Deducting Work From Home Expenses

Self-Employed Taxes Self-Employment Credits & Deductions Self-Employment Tax Planning
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Working from home comes with many perks. Are tax deductions one of them?

Ever since the COVID-19 pandemic made remote work a necessity, teleworking has become the new normal for many American employees. In fact, more teleworkers are now choosing to work remotely and increasingly say they prefer it to working in an office.

So, if you’re one of the many Americans who scored a new work-from-home job recently, you might be wondering: Can I write off my work-from-home expenses? It’s time to weigh those expectations against reality — let’s take a look.

Expectation: I’m working from home due to COVID-19. Now I can claim that home office deduction I’ve heard so much about!

Reality: Unless you’re self-employed, you won’t be able to deduct work-from-home expenses.

It’s true, some people who work from home can claim this tax break. However, as of 2021, the home office deduction only applies to self-employed workers. If you’re a salaried employee who works remotely, your work-from-home expenses are unfortunately not tax-deductible.

This wasn’t always the case — up until the Tax Cuts and Jobs Act changed the tax law in 2018, employees who worked from home could claim itemized deductions for their home offices as unreimbursed expenses on their income tax returns. But now, only self-employed people such as independent contractors, freelancers, or small business owners can qualify for the home office deduction on their federal tax return.

However, it’s worth noting that a few states still allow the deduction of unreimbursed expenses for employees working from home, which you can claim on your respective state tax return. So, check your state’s laws! If your state allows this deduction, it might still be worth keeping track of your unreimbursed expenses.

Expectation: I’m self-employed, so I automatically qualify for the home office deduction.

Reality: Your home office space needs to meet the IRS requirements for this deduction.

Simply being self-employed doesn’t automatically make you eligible for the home office deduction. Before you can write off your home office expenses, you must meet the following eligibility requirements from the IRS:

  • Your office is an exclusive part of your home that you use solely for business purposes.
  • You use the space for business on a regular basis.
  • The home office is your primary place of business OR the only location where you can perform administrative or management duties for your business.

As always, special exceptions do apply in some circumstances.

Expectation: I run a side gig from home, but I won’t qualify for the deduction because it’s not my full-time job.

Reality: You can qualify for the deduction even if you freelance on the side or were only self-employed for a few months.

The home office deduction doesn’t just apply to full-time workers. If you freelance part-time or were only self-employed for a few months before you found a new full-time job, you can still qualify for the deduction. You just need to make sure you use(d) your home office regularly and exclusively for your business, and you have some Schedule C self-employment income to be eligible.

Expectation: I must be a homeowner to qualify for the home office deduction.

Reality: Renters can qualify for the home office deduction, and “home” applies to more than just houses.

A common misconception is that only homeowners can deduct their home office expenses, but that’s not true. This deduction is available to both homeowners and renters.

According to the IRS, if your home office is used exclusively and regularly for work purposes, your office location could be a house, apartment, mobile home, condo, or even a boat. Other structures on your property, such as an unattached garage, barn, or greenhouse, also fit the IRS definition of “home” for this deduction, provided you meet all the other requirements.

Your home office doesn’t have to be a separate room, either. For instance, if you conduct your business at a desk in the corner of your living room, you can still qualify for the home office deduction. Just remember, you must use that space solely for business use and not for any personal use.

Expectation: It takes a lot of work to calculate the correct home office deduction.

Reality: Filers can use the simplified method for an easy way to calculate their deduction.

While good recordkeeping is an essential skill for all self-employed individuals, you don’t have to be a highly organized math wizard to take advantage of the home office deduction.

The IRS provides taxpayers with a simplified method to easily calculate their home office deduction amount. Using this option, you deduct a flat rate of $5 per square foot (up to 300 total square feet).

Suppose you’d rather calculate everything yourself using the standard method. In that case, you must first divide up your direct and indirect home office business expenses and deduct a percentage of each (we go over this method in more detail here). While this option may seem tedious, you can often find apps that will track your work-from-home expenses and help you figure out how much you can write off on your taxes.

Tax Tip: It’s always a good idea to attempt both methods to see which yields a bigger deduction.

This article is for informational purposes only and not legal or financial advice.
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