When theflowed through the US in March 2020, the vast majority of workers who could gathered their stuff and The shift was seismic: According to Bryan Bassett, senior research analyst at IDC, a previously slow-growing population of full-time remote workers from January 2020 to about 23.7 million in January 2020 grew to about 37 million by the end of the year.
To find out if you’re eligible to claim it, here’s everything you need to know about the home office deduction.
Note: It is always a good idea to consult a trusted tax advisor orto get the details for your specific situation.
What is the home office deduction?
At its most basic level, this deduction allows you to reduce the amount of taxes you owe by claiming the space in your home that is intended for working
Who can claim the home office deduction?
Although millions of people now work from home because of the coronavirus, only a specific subset of them can claim the deduction. If you are self-employed, that is, if you work for yourself, set your own hours, or have a small business, you are likely eligible to claim this deduction. According to the IRS, these three employee categories are technically eligible:
- Own boss
- Independent contractor
- “Gig economy” worker
Are full-time W-2 employees who work from home eligible?
They are not. In 2017, the Tax Cuts and Jobs Act suspended the tax deduction for home office deductions until 2025. That means that if you are an employee who gets a W-2 from an employer, you won’t qualify for the home office deduction – even if you work from home.
Note that this could change at some point – almost certainly not in time for your 2020 taxes – but maybe next year, if Congress decides to provide additional tax credits in future COVID-19 legislation. After all, remote work isn’t going away: Gartner says 48% of employees are likely to work remotely at least some of the time, even after the pandemic.
What types of office spaces are eligible?
Once you’ve established that you are to be eligible for the deduction, you must assess whether your home office meets the requirements. First, it must be the primary space where you work; If you rent office space elsewhere, your home office is not tax deductible. Second, it must be space dedicated to work; if you eat at your kitchen table and work on it, it doesn’t technically qualify.
You can claim the deduction regardless of whether you rent or own your home, and regardless of whether you live in a house, apartment or flat. However, you cannot claim it if you have been in a hotel room or other temporary accommodation during the past year. There are a few loopholes for internal service providers and business owners who store their inventory at home.
Will the IRS take a closer look at using this deduction this year?
According to Garrett Watson, senior policy analyst at the Tax Foundation, it’s hard to tell, though he says a W-2 employee who claims the deduction with no other income is more likely to be flagged. “For self-employed filers, it will be more challenging for the IRS to detect misuse, although the agency uses several tactics, including checking if this is a new deduction to mitigate potential problems.”
Are there any downsides to the home office deduction?
The main drawback is not specific to the deduction itself, but rather to the dreadedIf you work for yourself or run your own small business, you will be taxed at a rate of 15.3% on the first $ 137,700 of your combined wages, tips, and net profit. And the threshold is low: If you made $ 400 or more by self-employment in 2020, you’ll have to pay this tax.
If you want to get into the weeds, claim the home office deduction (and others), check out IRS Form 8829. But any good tax software package will help you claim the home office deduction – and – including premiums for health insurance and pension savings. And there are more details on the details – including exactly how to calculate your home office deduction – on the IRS website.
More tax advice for 2021