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Advice on Maximizing Your Tax Deductions When Working From Home

Feb 02, 2023

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Millions of Americans began working remotely once the Covid19 outbreak started. Because of the decreased costs for transportation and meals, it has been a huge financial benefit for many. On the other hand, working from home has increased the price of power bills, home office supplies, furniture, stationery, and materials, among other things.

There are a few considerations you should make before submitting an application for the work-from-home office tax deductions, despite how alluring they may sound.

Nobody can claim it.

One of the best benefits of working for yourself is that you may deduct a considerable amount of taxes when you do so from home. Typically, W2 workers who work remotely are not eligible for these deductions.

Salary employees could no longer take the deduction for a home office, based on the TCJA. Nevertheless, the rule does include a few exceptions. Five different professions can take use of an exemption provided by the IRS to partially deduct their out-of-pocket business expenses:

Actors, dancers, musicians, and other performing artists: are included in this category. These individuals may write off some business expenses, including the cost of business travel, professional photographs, and website maintenance.

Members of the National Guard and Reserves: You may be able to deduct some out-of-pocket costs related to your employment if you belong to the National Guard or Military Reserves.

Officials of the state and municipal governments: These individuals are eligible to claim travel and home office expenditures as work-related expenses.

Disability sufferers, whether they be mental or physical: You can deduct work-related expenditures, like as attendant care, if you have a disability, either physical or mental.

Educators in grades K–12: You may deduct up to $250 in out-of-pocket costs associated with your job as a teacher, counselor, or principal.

These experts can itemize their home office costs on Form 2106 and submit it. The following are examples of some of the most popular office deductions:

Rent


Rent can be written off as a valid business cost if you operate from home in part.

Furniture for a home office


Due to its sole usage in company operations, whatever furniture you purchase for your workstation is tax deductible.

Apparatus for a home office


You may deduct the cost of a computer or a printer if you need them for your place of business. Making sure the equipment isn't being used for personal purposes is necessary to be able to deduct the maximum amount allowed, though.

Insurance


Despite the fact that the cost of insurance might be rather high, one benefit of home office deductions is that you can deduct the insurance costs related to your home's use for business purposes.

Basics for the home


The price of any mop, vacuum, or other cleaning products you need to keep your home office clean can be written off here.

Utilities


Though they may not seem like much at first, utility costs may add up to a significant sum over time. Therefore, if you run a business from home, you can deduct the cost of essential utilities like electricity, gas, water, and garbage collection services for the percentage specific to your home office.

Household upkeep and repairs


You can claim a tax deduction for the cost of the renovation if you want to convert a spare room in your home into an office.

Internet and phone charges


A dependable internet connection is probably necessary for you to operate your organization. Consequently, you may deduct some of your wifi charges from your taxes! Getting a wifi connection specifically for your home office is required if you want to deduct the whole amount. Similar to that, you may be able to write off some of the cost of your landline connection.

Not all home office configurations meet the requirements


Keep in mind that there are requirements laid forth by the IRS that you must satisfy in order to qualify for the home office deduction:

Use of a portion of your house entirely and on a regular basis: This is required. You cannot do any personal business from your home office, therefore. It is ineligible to be used as a guest bedroom.

Business's main location: Verify that your home office works as your central location of business. Therefore, your home office must be the main site of your business or a location where you frequently meet with clients or customers.

Pick the appropriate strategy


The IRS often provides two distinct ways for claiming the home office deduction: the simplified approach and the normal method. As a result, calculating the home office deduction need not be difficult. However, you cannot choose both options.

Common Practice: The traditional approach is time-consuming but allows you to determine your true home office costs. Accordingly, tax savings are determined based on the proportion of the home used for offices when calculating tax deductions using the standard approach.

One of the two techniques listed below can be used to determine the proportion of your house space that is legally permitted for commercial purposes:

  • By your home's overall size, divide the space devoted to your business.

  • The number of rooms utilized for business can be divided by the overall number of rooms in your home if all of them are the same size.


In contrast, as most homes don't have rooms of the same size, we'll advise you to utilize the area technique, which is the most effective.

Method that is simple


Instead of figuring out real costs, the streamlined technique allows taxpayers to multiply an IRS-mandated rate by the permissible square footage of the office. The streamlined choice does have some drawbacks, though:

  • $5 as a standard deduction for each square foot of a residence utilized for business (maximum 300 square feet).

  • Depreciation is not a tax deduction.

  • You are unable to incur a business loss using this deduction.

  • There is no carryover of funds that exceed the gross income cap.


Don't be very greedy


The home office deduction is incredibly advantageous, yet it is notorious for raising red flags in audits. Avoid being overly avaricious with your deductions to prevent an audit. Expenses that are solely necessary for your business should only be reported. Limit how much you spend or deduct to avoid an IRS audit notice.

Research your other tax deduction options, like the food and entertainment deduction, self-employed health insurance deduction or the Goodwill donation deduction.

Get professional assistance


Selecting the best approach for the home office deduction might be challenging. Generally speaking, it is advised that you use the normal approach if you live in an expensive region with greater mortgage and rent payments because doing so may result in a bigger deduction.

However, if you are unclear of what you may and cannot deduct, see a CPA or use an app like FlyFin to help you file your taxes. You may use the app to find the approach that works best for you because it is supported by CPAs and is driven by A.I. You may also want to consider using a 1099 tax calculator.