404 298-9413
www.accountingandrefunds.com
Stone Mountain
Increasingly, people are working from their homes more than ever before. Working from home has become the norm in many industries in America. It is not uncommon to see a consultant working from home over Zoom, a freelancer at their computer In their home office writing an article or developing computer software, or even an artist creating homemade items to sell. With this workplace shift, there may be some tax benefits that were not anticipated. Historically the home office deduction was thought of as something only for the rich, but this shift has made It something that anybody who works from home for themselves needs to consider. There are pros and cons to deducting home office expenses from your taxes that you should be aware of, if you work from home. even part-time.
WHO QUALIFIES FOR A HOME OFFICE DEDUCTION? Before the changes implemented in the 2017 tax reforms, W2 employees used to be able to deduct the home office expense from their taxes. However, that was suspended until 2025. Today, the IRS limits th. home office deduction to those who are “qualifying self-employed taxpayers, independent contractors, and those working in the gig economy.
To qualify, the IRS says you must pass two requirements. The first requirement is that the part of your home you are using as a home office must be EXCLUSIVELY used for conducting business on a “REGULAR BASIS”. Your kitchen table would not qualify as a home office. However, it does not need to be a separate room walled-off with a door either. For instance, if you have a desk and filing cabinet in your living room with the computer and paperwork that you use exclusively for your business, then that square footage around the desk could qualify. The other key of this first requirement is that it must be used on a “regular basis.” If you use this area for business purposes daily, weekly, even monthly, you should be fine. But if you are only using it a couple times a year, that may not meet the requirements. The second requirement is that it must be your principal place of business. Your home office should be the place where you actually conduct business. It should be, for example, the place where you are conducting your freelance work over your computer, or meeting customers, or the place you store your inventory that you sell. If you rent a separate office, it may be difficult to take the home office deduction.
404 298-9413
www.accountingandrefunds.com
Stone Mountain
HOW DO YOU CALCULATE THE TAX BENEFITS FOR A HOME OFFICE?
Now that you have decided that you qualify for the home office deduction, you may want to calculate just how beneficial is the deduction. The first step is to determine the size of your home office. If you have a separate wall-ed off room that is your home office, that makes It easier to figure out the square footage. Otherwise, determine what space is exclusively to be used for your home office, and then measure the square footage. For instance, let’s say you have a 10’ x 10’ area designated as your home office, which computes to a 100 square foot home office. For this example, let’s say you have a 1000 square foot apartment or house. Therefore, you have designated 10% of your home as part of your home office. The next step is to determine what expenses are directly related to your home office. Did you paint the walls, buy a new desk or, purchase office supplies? These can all be directly related to your home office expenses and may be 100% tax deductible. Lastly, you can also deduct expenses pertaining to the house as a whole, but only up to the size of your home office relative to your house. Using our example above, if your homeowners insurance bill is $800 a year, and your home office is 10% of your home, then you could write off $80 from your taxes for homeowners insurance. The same is true for other bills that pertain to the house as a whole, including your electric bill, heating and cooling repairs, Internet access, rent, etc. You cannot, however1 deduct for painting a room or buying furniture for a room not part of your home office. To make ft easier, as an alternative to these last two steps, the IRS allows you to simply deduct $5 per square foot that is included into your home office, up to 300 square feet. This certainly makes it much easier, but depending on your expenses you may not be maximizing your tax benefits.
ANY DOWNSIDES OF THE HOME OFFICE DEDUCTION? There is a belief that by including a home office deduction on your taxes, you may be increasing your odds of an audit. No one can say for certain whether that will increase your odds or not, but with the millions of people working from home, this has become a common deduction, and a perfectly legal one that you should not shy away from.
404 298-9413
www.accountingandrefunds.com
Stone Mountain
IS THE HOME OFFICE DEDUCTION RIGHT FOR ME?
You and I can best determine if you can and should use the home office deduction. It opens the door to many tax benefits, which is just another reason why starting your own small business and working for yourself, even part-time, has great benefits.
We will be happy to discuss how the home office deduction can benefit you. Give us a call at (404 298-9413). We look forward to working with you!
404 298-9413
www.accountingandrefunds.com
Stone Mountain