A lot of Americans might believe that since they operate from home, they can claim tax deductions for part of their rent, utilities, and other expenses. However, that’s not necessarily true.
It's not everybody who can qualify for that task. Hourly workers who decide to undertake this. work from home shoulder all the associated costs, according to taxation specialists.
The 2017 Tax Cuts and Jobs Act eliminated unreimbursable itemized deductions specifically for employees, and although more individuals started working remotely, these deductions were not reinstated by Congress. This provision remains effective until 2025, as stated by Eric Scaringe, a principal at the certified public accounting firm UHY.
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Out of those employed individuals whose jobs allow for remote work, 75% are opting to do so at least part-time. as per the Pew Research Center Approximately 46% of employees believe that if their employers discontinued remote working arrangements, they would probably seek employment elsewhere. Even though many have been working from home, most do not qualify for any home office tax deductions.
Who is eligible for taking home office deductions?
Deductions for a home office are applicable solely to individuals who own their own small businesses and are self-employed. If you engage in freelance activities outside of your primary employment within your residence, you may be eligible. However, the guidelines are stringent, and determining these deductions could be intricate.
Below is a detailed walkthrough to help determine whether you're eligible for deductions and, if applicable, what factors to take into account when making these computations. :
Who is eligible for home office tax deductions?
Typically, when you get an W-2 In the wages tax document, eligibility requires having additional documentation as well. side gig That you can do from home—at least at the federal level.
"Several states may permit you to claim certain deductions," explained Mark Jaeger, who serves as the vice president of tax operations at TaxAct, the preparer service.
For instance, Pennsylvania and New York permit workers to claim certain un-reimbursed costs as deductions. Make sure to review your state’s regulations.
Self-employed: If you run your own business and consistently utilize a specific part of your home solely for this purpose, you might qualify to claim a deduction on your federal tax return for a segment of household costs. These can include items like mortgage interest, property taxes, homeowner’s insurance, and utility bills.
However, pay attention to the specifics, experts advise.
If you use your dining table for work, you cannot claim a deduction since it isn’t dedicated solely to professional activities," explained Therese Tippie, who serves as the tax manager and financial planner at EP Wealth Advisors. "However, purchasing a desk and placing it in a part of your home where it is consistently and primarily used for work would qualify you for such deductions.
You can claim a deduction for your home office area using either the simplified method or the regular option.
Simplified home office deduction
You can deduct $5 per square foot, up to $1,500 or 300 square feet, a year for your exclusive home office space ‒ if it's used for the full year. If you only use that space part of the time, then you prorate that amount, Tippie said.
Standard straightforward deduction for your home office
This might lead to a bigger reduction. Nonetheless, it necessitates tracking every single expense related to your home office, such as repair and maintenance costs.
"If you have an extra bedroom and have done renovations to convert it into an office — such as installing built-in shelves, painting it to prepare for virtual meetings like those on Zoom — these improvements can be considered part of your home office expenses," explained Tippie.
You may also deduct parts of various costs like rent or property taxes, home depreciation, and utility bills—calculated according to the percentage of the area used exclusively for business relative to your total living space.
If for instance, your workspace occupies 250 square feet out of a total house area of 1,000 square feet, then you would allocate 25% of your permissible expenditures towards this space (as calculated from 250 divided by 1,000 which equals 0.25). Assuming you incurred $10,000 in qualifying household costs, you may be able to apply as much as $2,500 toward deductions. It’s worth noting that there aren't restrictions placed on the amount you're allowed to deduct.
Can I deduct supplies?
Sure, provided they are typical for your sector and essential for your business operations — plus, you've kept the receipts.
Things you could potentially subtract may consist of mobile phones, computers, printers, and various office materials.
Tippie mentioned that considering the worth of these items, you should entirely deduct the full amount as an expense rather than capitalizing it. This deduction would be listed under Schedule C for office expenses or general supplies in the miscellaneous expenses category.
Keep in mind that if you utilize any of these items for both personal and professional purposes, only the portion used for work can be deducted. For instance, if you purchase a $2,500 laptop and use it 40% of the time for your job, you may write off $1,000.
The business lunch tax deduction returns to half.
By January 1, 2023, proprietors treating their clientele to meals were required to adopt splitting the bill. This change affected the deductibility of business lunches. returned to the level of 50% before the pandemic In 2023, the Taxpayer Certainty and Disaster Relief Act of 2020 remains effective. temporarily boosted The business deduction for food and beverages has been increased to 100%, inclusive of tax and tip, for both 2021 and 2022.
Note, entertainment expenses are not deductible And they have not done so since the Tax Cuts and Jobs Act in 2017, according to the IRS. If you bring someone to a place that provides both entertainment and meals, you need to divide the costs between the meal expenses and the entertainment expenses, and only write off the part related to the meal.
Can W-2 employees recoup some of their business costs through refunds?
It won’t be via your taxes, but you could potentially inquire with your employer about it.
"Tippie suggested that you could attempt to have your company cover these expenses if they mandate remote working conditions. They may provide reimbursement and claim deductions; however, others might insist their staff comes into the office," he added.
Medora Lee serves as a reporter for USA TODAY focusing on money, markets, and personal finance. Feel free to contact her at mjlee@Pawonation.com. sign up for our complimentary Daily Money newsletter for personal finance tips and business news every Monday through Friday.
The article initially appeared on USA TODAY: Can you claim your home office deduction on your taxes? The focus should be less on whether you can do it and more on understanding why you might do so.
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