Home Office Tax Deduction for Remote Employees: Everything You Need to Know

According to one survey, 41.8% of people say that they work remotely.

If you recently became an employee who works from home, you might be wondering if you can use your home office as a tax deduction. 

Figuring out the home office tax deduction for a remote employee can be confusing, but we’re here to help break it all down for you. Keep reading to find out how to deduct your home office!

Who Qualifies?

First, you need to make sure that you qualify in order to claim the home office deduction. Whether you’re renting or owning the home, you can still deduct the home office as long as it’s in a houseboat, condo, apartment, or single-family home. Hotels or another non-permanent lodging can’t be deducted.

You can also use a free-standing structure, like a barn or garage for your home office as long as you regularly use it. 

If you have those requirements, then you’ll need to meet two conditions: you have to regularly and exclusively use it, and it has to be your main place of doing business.

Regular Use

In order to qualify for this, you have to use it just for doing business. For example, if you are using a spare bedroom in your house as a nursery and a home office, this won’t make you eligible. 

But if your spare bedroom is just used as your office, you can deduct that. 

There is an exception to this rule, which says that you can also use your office as storage for your product’s inventory. 

Main Place

You might work in other places every now and then, but your home office has to me the main place where you conduct all of your business. 

This means that you set up appointments, book records, and bill your customers from that office. 

If you fit all these criteria, you can work with a company like WealthAbility to deduct this from your taxes!

What If You’re Only At Home for a Few Months?

So what if you conduct most of your business at your home office, but you’ve only been working there for a few months? 

Because of COVID-19, many people were sent home to work in their offices, and this means that they may be able to take a partial-year home office tax deduction. You can normally file this on your next tax return. 

To do this, you have to be self-employed though, and you have to use it only for your business. 

Is it Worth It?

When you’re working from home and making home office deductions, make sure that you keep an eye on the price of your house, especially if you’re a homeowner.

By deducting your office from your taxes, you can’t get any capital gains tax whenever you sell your residence. So you’ll have to weigh if it’s beneficial for you to deduct that cost now.

What Can You Deduct?

If you spent your whole year working in your office that meets all the requirements above, you can deduct one-tenth of the expenses that are related to your home. 

You can choose a standard one or one that is based on the square footage of your office.

Standard Deduction

With a standard deduction, this is an easier and simple option so that people don’t have to do a lot of math when they pay their taxes. 

Instead, they let you deduct $5 per square foot of your office. You can do this up to a max of 300 feet. However, the highest deduction you can make is $1,500 using this rule. 

Square Footage Deduction

But if you’ve spent a lot more than that just based on your utilities, you may want to use this formula where you go off the square footage. 

For example, if your rent was $20,000 for the year, then you can deduct $2,000. You can also take this out of your utilities as well. For example, if your utilities cost $7,000, you can deduct $700. 

You can subtract 10% off any home-related costs as long as it’s reasonable and makes sense. However, the IRS will let you choose between two different types of deductions.

Which One to Choose

For example, if you use the standard deduction for an office that is $100 square feet, you’ll only get $500 deducted. But if you use the square footage formula, your rent alone can be deducted as $2,000. 

This is why it’s important to make sure that you keep track of all your expenses throughout the year, even if they aren’t related to your business.

You can use whichever method will give you the highest return as long as you meet all of the requirements to do so. 

You should also keep in mind that your deduction can’t go above the gross amount of money that you brought in for that fiscal year. 

For example, if you use the square footage formula, and get a deduction that’s $1,100, you can’t deduct that much if your gross income was only $900. 

If you bought $200 of office supplies and brought that gross income to $700, you could only deduct $700. 

Learn More About Home Office Tax Deduction for a Remote Employee

These are only a few things to know about a home office tax deduction for a remote employee, but there are many more rules you should know about.

We know that taxes can be confusing, so it’s always best to consult a CPA to help you out. However, we have plenty of tips to help you as well!

If you enjoyed this article, make sure that you explore our website to find more articles just like this one.

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