In the event you’re one of many tens of millions of people that labored remotely in 2021, chances are you’ll be questioning whether or not meaning a candy deduction at tax time. Maintain up, although: The IRS has strict guidelines for taking the house workplace deduction.
[email_capture_widget]
7 Important Guidelines for Claiming a Work From House Tax Deduction
Enthusiastic about claiming a house workplace deduction in your tax return? Observe these tricks to keep away from elevating any eyebrows on the IRS whenever you file your 2021 tax return, which is due on April 18, 2022.
1. You may’t declare it if you happen to’re an everyday worker, even when your organization is requiring you to earn a living from home because of COVID-19.
In the event you’re employed by an organization and also you earn a living from home, you possibly can’t deduct house workplace area out of your taxes. This is applicable whether or not you’re a everlasting distant employee. It additionally applies in case your workplace was quickly closed in 2021 due to the pandemic. The rule of thumb is that if you happen to’re a W-2 worker, you’re not eligible for a work-from-home tax deduction.
This wasn’t all the time the case, although. The Tax Cuts and Jobs Act of 2017 suspended the deduction for miscellaneous unreimbursed worker enterprise bills, which allowed you to say a house workplace if you happen to labored from house for the comfort of your employer, supplied that you just itemized your tax deductions. The legislation almost doubled the usual deduction. Because of this, many individuals who as soon as saved cash by itemizing now have a decrease tax invoice after they take the usual deduction.
2. When you’ve got an everyday job however you even have self-employment earnings, you possibly can qualify.
In the event you’re self-employed — whether or not you personal a enterprise otherwise you’re a freelancer, gig employee or impartial contractor — you in all probability can take the deduction, even if you happen to’re additionally a full-time worker of an organization you don’t personal. It doesn’t matter if you happen to earn a living from home at that full-time job or work from an workplace, so long as you meet the opposite standards that we’ll talk about shortly.
You’re solely allowed to deduct the gross earnings you earn from self-employment, although. Meaning if you happen to earned $1,000 out of your facet hustle plus a $50,000 wage out of your common job that you just do remotely, $1,000 is probably the most you possibly can deduct.
3. It must be a separate area that you just use completely for enterprise.
The IRS requires that you’ve got an area that you just use “completely and frequently” for enterprise functions. When you’ve got an additional bed room and you utilize it solely as your workplace area, you’re allowed to deduct the area — and that area alone. So if your home is 1,000 sq. toes and the house workplace is 200 sq. toes, you’re allowed to deduct 20% of your own home bills.
But when that house workplace additionally doubles as a visitor bed room, it wouldn’t qualify. Identical goes for if you happen to’re utilizing that area to do your day job. The IRS takes the phrase “completely” fairly severely right here when it says you want to use the area completely for what you are promoting functions.
To keep away from operating afoul of the foundations, be cautious about what you retain in your house workplace. Photographs, posters and different decorations are high-quality. However if you happen to transfer your gaming console, train gear or a TV into your workplace, that’s in all probability not. Even mixing skilled books with private books might technically cross the road.
4. You don’t want a separate room.
There must be a transparent division between your own home workplace area and your private area. That doesn’t imply you must have a complete room that you just use as an workplace to take the deduction, although. Suppose you have got a desk space in that additional bed room. You may nonetheless declare a portion of the room so long as there’s a marker between your workplace area and the remainder of the room.
Right here’s a simple approach to separate your own home workplace out of your private area, courtesy of TurboTax Intuit: Mark it with duct tape.
5. The area must be your principal office.
To deduct your own home workplace, it must be your principal office. However that doesn’t imply you must conduct all what you are promoting actions within the area. In the event you’re a handyman and also you receives a commission to sort things at different folks’s homes, however you deal with the majority of your paperwork, billing and telephone calls in your house workplace, that’s allowed.
There are some exceptions if you happen to function a day care middle otherwise you retailer stock. If both of those situations apply, try the IRS rules.
[community_widget]
6. Mortgage and lease aren’t the one bills you possibly can deduct.
In the event you use 20% of your own home as an workplace, you possibly can deduct 20% of your mortgage or lease. However that’s not all you possibly can deduct. You’re additionally allowed to deduct bills like actual property taxes, house owner insurance coverage and utilities, although on this instance, you’d solely be allowed to deduct 20% of any of those bills.
Watch out right here, although. You may solely deduct bills for the a part of the house you utilize for enterprise functions. So utilizing the instance above, if you happen to pay somebody to mow your garden otherwise you’re portray your kitchen, you don’t get to deduct 20% of the bills.
You’ll additionally have to account for depreciation if you happen to personal the house. That may get difficult. Contemplate consulting with a tax skilled on this scenario. In the event you promote your own home for a revenue, you’ll owe capital positive aspects taxes on the depreciation. Everytime you’re claiming deductions, it’s important to maintain good data so you possibly can present them to the IRS if essential.
In the event you don’t wish to cope with in depth record-keeping or deducting depreciation, the IRS gives a simplified possibility: You may take a deduction of $5 per sq. foot, as much as a most of 300 sq. toes. This technique will in all probability end in a smaller deduction, nevertheless it’s simpler than the common technique.
7. Calm down. You in all probability gained’t get audited if you happen to observe the foundations.
The house workplace deduction has a infamous popularity as an audit set off, nevertheless it’s principally undeserved. Deducting your own home workplace bills is completely authorized, supplied that you just observe the IRS tips. A extra seemingly audit set off: You deduct an enormous quantity of bills relative to the earnings you report, no matter whether or not they’re associated to a house workplace.
It’s important to be prepared in case you’re audited, although. Ensure you can present a duplicate of your mortgage or lease, insurance coverage insurance policies, tax data, utility payments, and so on., so you possibly can show your deductions had been warranted. You’ll additionally wish to take photos and be ready to supply a diagram of your setup to the IRS if essential.
As all the time, seek the advice of with a tax adviser if you happen to’re undecided whether or not the expense you’re deducting is allowable. It’s finest to shell out a little bit extra cash now to keep away from the headache of an audit later.
Robin Hartill is an authorized monetary planner and a senior author at The PNW. She writes the Pricey Penny private finance recommendation column. Ship your tough cash inquiries to [email protected].