Tax Deductions for Working From Home
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Cally O'Loughlin
Updated 30th July 2020
Overview
Covid-19 UPDATE
Over the course of the Covid-19 outbreak, many US citizens have been required to work from home. States such as California imposed the "shelf-in-place" requirements across several major cities. This meant large corporates such as Google, Facebook and Airbnb had to enforce remote-working company-wide.
Self-employed and employed workers who use their home as an office are able to claim the resulting expenses as a tax deduction on their yearly federal tax return. In this article, we will cover the ins-and-outs of the "home office tax deduction", as well as go over other claimable WFH expenses you might not have considered.
Claimable Remote Working Expenses for self-employed professionals
Home Office Tax Deduction
The Home Office Tax Deduction is mainly accessible to self-employed professionals who are working from home. The working from home requirements to qualify for the tax deduction is that you use a portion of your home exclusively and regularly for business purposes. Even if your profession is not an office-based job, if you use a portion of your home regularly to research and develop projects, for emails and getting business, this deduction is allowable.
How to calculate the Home as Office tax deduction
If your office space is less than 300 square feet
One of the easiest ways to calculate your Home As Office Tax Deduction is by using the 'Simplified Method'. Currently, the IRS allows taxpayers to deduct $5 per square foot of home used in carrying out business. The maximum space that can be claimed is 300 square feet.
An example of this in practice is if you have an office space that is 50 square foot, the calculation would be $5x50. The total deduction would be $250
You can claim the Home as Office tax deduction in the Schedule C, line 30.
If your office space is more the 300 square feet
If your home office space exceeds the 300 square feet cap the IRS sets on the Simplified Method you can use the 'Regular Method'. Under the Regular Method, you can deduct the portion of expense allocable to your home office based on the size of the office space.
An example of this in practice is if your home is 400 square foot and the total size of your home is 2,000 square foot, you would calculate what percentage the office takes up of your total home (20%). There, under this method, 20% of our home-related expenses are deductible under the home office deduction.
You can claim the home office deduction under the regular method by filing the Form 8829.
The IRS has made a side by side comparison of the two methods, see here.
Allowable WFH Expenses for employed professionals
Unfortunately, if you are an employee, you are not entitled to claim the Home Office Tax Deduction. Before 2018, employees were able to take the home office deduction if they worked from home. However, the Tax Cuts and Jobs Act (2018) eliminated all employee job expenses from 2018 through 2025.
This can be a major motivator for some employees to decide to switch to contractor positions- alongside the addition expensing benefits of being in a self-employed position. As an employee, your employee will issue a W-2 form every year to the IRS.
A W-2 form will contain your wages and any other compensations. We recommend that if you work from home and incur any of the working from home expenses stated, you discuss the reimbursement with your employers. If you satisfy the reimbursement guidelines, the reimbursement will be tax-free and your employer can deduct the full amount as a business expense.
Some states require all employers to reimburse employers for home office expenses. These states include:
California
Pennsylvania
Illinois
Montana
Iowa
New Hampshire
Other claimable office expenses
Just like with all other areas of self-employed expenses, if the expense is wholly and exclusively incurred due to work it is claimable. These expenses may include, but are not limited to:
Stationary
Computers
Printers
Scanners
Desk
Desk Chair
Postage costs
Phone Bills
Home insurance
Electricity
Water Bill
Internet Bill
Minimise your tax owed on your federal tax return
Bambridge Accountants specialise in US and UK taxation worldwide. Our team of chartered accountants are expert in minimising tax owed while keeping clients up to date with their filing obligations.
Contact us for expert tax advice on the expenses you could be claiming.