Working From Home & Tax Deductions 2

“Work from home” has become a common phrase among many business professionals. The COVID-19 pandemic pushed businesses 10 years into the work from home future when the country went on lockdown in March. Just turn on the television and you will find that more than business office professionals are working from home, talk show hosts and news anchors are also working remotely. If you are thinking that you may be able to deduct your office expenses, you should read on before filing those tax returns. Since the Tax Cuts and Jobs Act (TCJA), was signed into law in 2018, you can no longer deduct home office expenses if you are an employee. However, if you are self-employed there is good news ahead!

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If you are self-employed and/or an independent contractor, even if it is just part-time, the act does not affect you. You can continue to deduct qualifying home office expenses. The home office expenses will be itemized on Form 8829, which is filed with your Schedule C, Profit or Loss From Your Business, on your 1040. What expenses are considered deductible if you are one of the lucky ones to deduct?

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  • To qualify for the home office deduction, a portion of your home must be exclusively and regularly for your trade or business. This area must be used as an actual space you conduct business and not just at your home for convenience.
  • To deduct expenses such as insurance, taxes, interest, etc., there are two methods:
    • The percentage allocation method is the oldest and for a time, the only, method used. For example, if you have a 2,000 square foot home and 200 square feet are used as your home office, then 10% (200 divided by 2,000) of the total home-related expenses are deductible.
    • Since 2013, a simplified option has become widely used. This method allows you to claim $5 per square foot of your home used for business up to a maximum of 300 square feet. For the above 200 square foot example, the total deduction would be $1,000.

For more tax information to consider when it comes to business-related decisions in light of recent tax reforms, contact Potts and Company today via Potts and Company’s Contact Us page or call 479.648.2846.