The Financial Freedom Of Working From Home: A Guide To Tax Deductions

Let’s say you are a self-employed person, and you want to lower your tax bill. In that case, you can opt for work-from-home tax deductions.

However, it only applies if you have a business of your own. Moreover, you must be using a part of your home solely for your business purposes and not anything else. To learn more about tax deductions for the self-employed, read through to the end of the article.

In this article, you will learn about the best tax deduction options for you if you work from home. In addition to that, we will also discuss the significant qualifications of home office tax deductions.

Next up, you will get an idea of how the work-from-home tax deduction system works. Finally, you will also learn how to apply for the tax deduction if you are working from home.

Work From Home Tax Deductions – What Is It?

Work-from-home tax deductions are a type of business expense. You can reduce the payments that you make at the time of tax returns.

The most popular tax deduction for people who work from home is the home office deduction given to self-employed people. This tax deduction is for those people who use their home office solely for business purposes.

However, according to Business Insider,

“these deductions almost exclusively apply to those who own their own businesses or have some sort of self-employment income, such as freelancers and gig workers. Regular W2 employees generally can’t take these deductions, even if you switched from working in an office to working from home.”

Since you are maintaining a home office while working from home, you will be able to reduce your taxable income.

However, there are also other deductions available. For example, you can apply to run a business if you run a business out of your home. On the other hand, if you are an independent worker incurring some relevant business expenses.

Who Can Qualify For Work From Home Tax Deductions?

According to USA Today,

“Generally, if you receive a W-2 wages tax document, you’re not eligible unless you also have a side gig that you do from home. If your home office is used exclusively and regularly for your self-employment, you may be able to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, homeowners’ insurance, and utilities.”

For example, if you work at a table where you dine as well, then you cannot get tax deductions in this case. This is because you do not use that space exclusively for work.

However, let’s say you would instead purchase a work desk and place it in the corner of your home, and use it solely for work related to your business. You will get tax deductions for the same.

If you want to qualify for work-from-home tax deductions for your home office, you will have to meet one of the criteria mentioned below:

1. You Must Use Your Office Space Regularly And Exclusively

If you use a portion of your home area daily for your business, you can get tax deductions for the same.

This can be any part of your property that you exclusively use for business purposes and not anything else. To calculate the tax, you will need to measure the area and compare it with your total home area; then, multiply the number by 100 to get the percentage.

2. Your Home Office Is the Principal Place for Your Business

You should use your home office as the principal location of your business. It can also be a place where you regularly meet your clients and customers. However, daycare and storage facilities are exceptions to this rule.

How Does The Work-from-Home Tax Deductions System Work?

There are two methods of tax deduction – one is the simplified method, while the other is the standard method. In the simplified method, you will not have to keep records of all your expenses.

All you have to do is deduct $5 per square foot of your home office up to 300 square feet, and the maximum deduction you can make is $1500. This method is easy for you to keep records of your tax expenses.

According to US News Money,

“If you use the simplified method, you take the deduction directly on Schedule C by reporting your business income and expenses.

If you choose the standard method, you must submit Form 8829 with your income tax return and report the total deduction from your business income on Schedule C.”

To calculate tax using the standard method, you can get a variety of accounting apps that allow you to easily keep records of your tax deductions as well as tax returns.

How To Apply For Work-From-Home Tax Deductions?

If you use tax software to calculate your taxes and tax deductions, then you can use the standard method of calculating your work-from-home tax deductions.

However, if you are not using the tax app for your tax deductions, then you can get help from a professional.

On the other hand, if you cannot afford to get help from a professional, you can just use the simplified method of tax deduction to calculate how much tax you can deduct.

You must use the IRS Form 8829 to calculate your allowable business expenses. This way, you can ensure that your work-from-home deductions are not complicated.

Expenses That You Cannot Claim

In this section, we have outlined the everyday expenses that the employees cannot claim, in general, when they are working from home. Read on to know more!

1. Office Refreshments

People say it is almost impossible to start their daily work without a cup of morning coffee. However, when you are working from home, the tax deductions don’t allow refreshments as deductions for the employees.

2. Reimbursed expenses

As a work-from-home employee, you cannot claim any expense that the employer has reimbursed. Let’s say your employer reimburses you for calling and home internet costs during the work-from-home period. You cannot claim these expenses under the tax deductions.

3. Costs associated with childcare or child home learning

It is very unfortunate that childcare and child home learning do not count as a working-from-home expense.

Bottom Line

If you are a self-employed individual, you can get a work-from-home tax deduction if you meet specific criteria with your home office.

If you use your home office solely for business purposes, you are eligible for tax deductions. Furthermore, the total expenses that you deduct cannot exceed your business income for which you are claiming deductions.

However, you will have to keep complete records of your tax deductions in case of an audit. Do you think the home office tax deduction system is helpful for people who work from home? Share your views on the same in the comments section below.

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