The dining room isn’t just the dining room anymore. Thanks to the pandemic, it has become the classroom, the office, the conference room, and if you have multiple kids, probably a wrestling ring as well.
In addition to our work schedules feeling very different than before, you may be wondering if there are any tax implications from working from home as well. The answer to this is, well, maybe.
We’re going to dive into the most commonly questioned tax deduction, the home office tax deduction, and help you learn what it is, who qualifies, and how to claim it on your taxes if you qualify.
- What is the “home office” tax deduction?
- Who can claim a home office tax deduction?
- Why do only self-employed people get to claim this deduction?
- Will W-2 employees ever get to claim it?
- If I qualify, how do I claim it on my taxes?
What is the “home office” tax deduction?
Put simply; the home office tax deduction is a deduction that allows you to write off a certain amount of your rent or mortgage for space that is used as an office.
Who can claim a home office tax deduction?
This is where things get a little more complicated. According to the IRS, these are the conditions you must meet to claim a deduction for your home office:
- Your home office must have regular and exclusive use: The IRS defines this as “You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.” So, if you primarily work on a laptop at the dining room table, you likely won’t qualify, but if you converted the den into a home office, you might be able to take a deduction.
- It must be the principal place of your business: This is a bit more straightforward. If you rent office space at another location, you can’t claim your home office as well. However, if you meet the first requirement and it is the primary place you run your business, you may qualify.
There are also deductions available if you have a free-standing structure such as a shed or barn that you use exclusively to conduct business out of.
Ok, so you just need a dedicated space to conduct business, and you get the write-off?
Unfortunately not. Not all workers qualify for this deduction.
If you are an employee who receives a W-2 from your employer, you do not qualify for this deduction.
This deduction was designed for self-employed individuals to be able to claim their home office expenses as part of their overall business expenses. Unfortunately, that means that many workers who were relegated to working from home due to the pandemic won’t actually qualify. There are some discussions in Congress about changing this, but as it currently stands, you must be self-employed to claim this deduction.
Why do only self-employed people get to claim this deduction?
As we mentioned before, the deduction was built alongside other deductions for self-employed individuals. Part of the reason there are more self-employment deductions available to self-employed individuals is due to the 15.3% self-employment tax levied against self-employment income. This hefty tax can be offset by claiming more deductions afforded to self-employed people.
Will W-2 employees ever get to claim it?
There is a possibility that in the future W-2 employees may be able to claim more tax deductions related to the expenses of working from home. Lawmakers are beginning to acknowledge the huge shift in remote work and the expenses associated with it, so there is a possibility for things to change in the future.
If I qualify, how do I claim it on my taxes?
To claim a home office deduction or any other self-employment deductions, you’ll need to fill out IRS form 8829, which allows you to calculate all of the different deductions that you may qualify for. Keep in mind, to use this form; you’ll need to keep a detailed record of all your business expenses related to working at home. This can be extremely complicated and time-consuming, which is why there are a slew of software platforms out there to help with it. Platforms like Expense Sensei allow you to digitally track all of your business expenses in one handy place. Say goodbye to lost receipts and cluttered ledgers!
Home office taxes can be overwhelming, but with a little bit of knowledge and the right tools, you can conquer them once and for all, saving you big money on your taxes each year. And saving money on taxes means more money to grow your business or even take that vacation you’ve been dreaming of. So arm yourself with the right tools to track your business expenses, and when in doubt, hire a tax expert who can guide you through all the steps necessary to get the maximum deduction on your taxes each year.