Doing business out of your home may entitle you to some work-from-home tax deductions. Whether you are an employee or a self-employed individual, claiming home office expenses on a tax return can help you save money on taxes. Read on to learn more about home office deductions, claiming home office expenses on a tax return, and more!
Work from Home Tax Deductions FAQs
What Are the Home-Related Expenses I Can Deduct when Working from Home?
Home office deduction allows you to write off a certain amount from your home-related expenses. These expenses include rent or mortgage interest, utilities, repairs and maintenance, insurance, and property taxes. To qualify for this deduction, the declared home office must be your regular and principal place of business where you perform your usual work-related tasks and meet clients and partners.
How Can I Compute for the Home Office Deduction?
To compute your home office deductions, you can either use the regular or simplified method. By using the regular method, you need to divide the area of your home office by your home’s total footage. Consider this for instance — if your home has a total area of 1,000 square feet and your home office has an area of 120 square feet, you can deduct 12% on your home expenses. Alternatively, you can also determine the percentage of your home office deduction by dividing the number of rooms used as your home office with the total number of rooms in your home. So if your home has a total of five rooms and you are using a single room to work from home, you can deduct 20% from your expenses.
The simplified method for home office deduction was made available by the IRS effective January 2013. This option gives you a standard deduction of $5 per square foot of your home office. However, there is a limit of 300 square feet of allowable area when using this method. The IRS allows an individual to use any of these methods above for any taxable year.
What Is the Difference of Home Office Deduction Between a Self-Employed and Employed Individual?
When you’re working as a self-employed individual, claiming for home office deduction is much easier compared to when you are employed. The IRS requires that home office deduction for employed individuals can be qualified for when you are working from home because it is convenient for your employer. An example is a business which operates virtually and does not have a regular office for you to work in.
Can I Deduct Any Miscellaneous Expenses?
In addition to home-related expenses, you may also deduct other miscellaneous expenses. You can write off expenses such as mobile, internet, travel, and meal expenses in your tax return when they relate to your work. For example, when you use your personal vehicle when meeting a client or attending meetings, you may deduct these expenses or a portion of them. To find out the amount you can write off, you need to determine a prorated amount from your total bills.
Do I Need to Provide Receipts when Claiming These Deductions?
The IRS does not require any attachment when filing for these work from home tax deductions. However, it is highly suggested to keep records of these expenses to easily track the deductible costs. Additionally, it would be helpful if you are chosen to be audited by the IRS to have these records available.
What IRS Form Do I Need to Use when Filing These Work from Home Tax Deductions?
Sole proprietors use IRS Form 8829 (Expenses for Business Use of Your Home) and Schedule C. Home office deductions for employed individuals use IRS Form 1040 Schedule A, where the home office deduction is considered as unreimbursed employee expenses.
Working from home is common nowadays. While some people enjoy the flexibility of doing business from their homes, others are not familiar with these tax benefits. Take advantage of these home office deductions now so you can enjoy some savings as you grow your business.
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