How to Qualify for the Home Office Tax Deduction

Table of Content

• Actual Expense Tax Deduction (i.e. the Standard Method or Regular Method)
• What Happens If My Employer Reimburses My Work From Home Expenses?
• How small business owners can deduct their home office from their taxes
• Here's who can claim the home-office tax deduction on their 2021 tax return
• Self-Employment Tax Deductions
• Support

Instead of expecting your employees to buy and pay for remote working equipment, consider buying these items for them. As an employer, you will then be able to claim these as business expenses, so it’s as if you were getting work from home tax deductions. Find out what your employees need to carry out their work from home, buy the necessary equipment, deduct the cost from your taxes, and then send the equipment over to your worker’s home. As a result, many people who once saved money by itemizing now have a lower tax bill when they take the standard deduction. The office also has to be your principal place of business or a place you meet regularly with clients or patients.

For other expenses such as phone and Internet, you can split these between working for yourself, as an employee or as a personal expense. For deducting home office space on your tax return, the IRS requires these expenses to be used exclusively for your self-employed business. Since the 2018 tax reform became law, generally only self-employed people can claim tax deductions when working from home. Working as an employee and for yourself doesn’t necessarily disqualify you from taking these tax deductions.

Actual Expense Tax Deduction (i.e. the Standard Method or Regular Method)

Google WorkspaceCollaborate smarter with Google's cloud-powered tools. Office Microsoft 365 / Office 365Powerful Exchange email and Microsoft's trusted productivity suite. Hard to believe, but you can get a tax break for staying in your pajamas and fuzzy bunny slippers to run your business. This means you do not have to work out the proportion of personal and business use for your home, for example how much of your utility bills are for business.

You use the area in your home dedicated to your home office regularly and exclusively for your home office. For example, if you regularly use your a guest room in your home for your office. If your income is above the limit, you might still be able to claim the pass-through deduction depending on the precise nature of your business . Also, you can’t deduct advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Anyone from real estate agents and journalists to day care providers and jewelry makers could deduct part or all of their annual cell phone or internet bill. Premiums for business insurance, employee accident and employee health insurance.

What Happens If My Employer Reimburses My Work From Home Expenses?

Transportation and storage costs are a category of deductible expenses now available only to active-duty members of the U.S. military. Business expenses such as buying equipment or vehicles aren’t considered startup costs, but they can be depreciated or amortized as capital expenditures. Any education expenses you want to deduct must be related to maintaining or improving your skills for your existing business. The cost of classes to prepare for a new line of work isn’t deductible. Make sure you keep detailed records of each trip’s date, mileage, and purpose, and don’t try to claim personal car trips as business car trips.

There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business. NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site.

How small business owners can deduct their home office from their taxes

Just answer simple questions, and we’ll guide you through filing your taxes with confidence. If you use your home office for your W-2 job and your side gigs, you won’t be able to claim your home office as a tax deduction. You need to keep accurate records of any expenses you claim as a deduction.

The IRS requires that you have a space that you use “exclusively and regularly” for business purposes. If you have an extra bedroom and you use it solely as your office space, you’re allowed to deduct the space — and that space alone. So if your house is 1,000 square feet and the home office is 200 square feet, you’re allowed to deduct 20% of your home expenses.

Costs you can claim as capital allowances

The standard meal allowance is the federal meals and incidental expenses (M&IE) rate, updated every fiscal year, effective Oct. 1. Remember, you’re paying the first 7.65% whether you are self-employed or work for someone else. And when you work for someone else, you’re indirectly paying the employer portion because that’s money that your employer can’t afford to add to your salary. To use the Actual Expense Tax Deduction method to calculate, measure your home and your home office; then calculate what percentage of your home is your home office.

The cost of specialized magazines, journals, and books directly related to your business is tax deductible as supplies and materials, as are dues or fees for certain professional membership organizations. That said, it’s always cheaper to spend only the money you already have and not incur anyinterest expenses. A tax deduction only gives you back some of your money, not all of it, so try to avoid borrowing money if possible.

Only those who are self-employed can qualify, following the passage of the 2017 Tax Cuts and Jobs Act . Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. That means, if you tend to work away from your office at home and only rarely use it to fill in some paperwork, you may not be able to claim expenses on the room. You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home. As always, consult with a tax adviser if you’re not sure whether the expense you’re deducting is allowable.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.

As an example, if total deductions come to $1,200, yet you only earned $950 of income from the business, then only $950 of deductions can be taken for that year. However, the remainder can be carried forward to a future year and deducted when business income exceeds expenses. Even before the coronavirus pandemic, an increasing number of people worked from home.

Calculating the home office deduction under the simplified method is straightforward. You take the square footage of your home office used exclusively for your self-employed business and multiply it by $5 per square foot up to a maximum of $1,500 per year. The other way to claim the home office deduction is by using the direct method. This involves tracking all of your home office expenses in addition to any costs related to repairing and maintaining the space.

Since most W-2 employees get a lower tax bill by taking the standard deduction instead of itemizing, you’re probably just going to be out of luck if you want to claim expenses. Is the workspace for your home office used exclusively and regularly for business? Both of these criteria must be met in this test before any deduction can be taken.

If you work from home, you need to know how to qualify for the home office deduction, pay self-employment taxes and understand which business expenses you can take deduct. If you’re tired of setting up office in your local coffee shop and decide it’s time to rent a place, the rent you pay is deductible. And since you won’t have access to coffee shop Wi-Fi , you’ll be able to deduct the cost of internet and any utilities as well.