Home Office Deduction - LATEST UPDATE

Octavia Conner

By Octavia Conner

Tags: All, Taxes, Accounting

Covid Changed Everything!

 

With that, many people find themselves working from home. Now the question is who can claim the home office deduction.

 

You get a home office deduction! And you get a home office deduction, and EVERYONE can claim the deduction! BUT can you really?

 

What if you work from home to complete the administrative tasks for your business, but you travel to work with clients? Can you still claim the home office deduction? What if you work for someone? Can you claim the home office deduction?

 

There are plenty of factors to think about and in this video and article, I have provided clarity on who can take the Home Office Deduction.

 

Today, we will discuss the changes to the Home Office Deduction and how they will affect your consulting firm's taxes. Due to the pandemic, many people are now working from home.

 

You may be entitled to a HUGE tax saving with setting up a home office. Let's deep dive into the calculations and who qualifies and who does not.

 

Do I Qualify for Home Office Tax Deduction?

 

First, you may be wondering who can not claim the home office deduction. You can not claim the home office deduction if you are an employee.

 

Therefore if you receive W2 wages, you do not qualify. If you are a business owner or independent contractor, you qualify to claim the home office deduction. 

 

To qualify for the home office deduction, the term "home" must be your principal place of business. Also, there must be the exclusive use of a portion of the home to conduct business regularly. 

 

Understanding the Administrative Use Exception.

 

If your consulting firm requires you to conduct training and client meetings at the client's location, but daily operations such as all management and administrative tasks are completed at your home office, you may qualify for the home office deduction.

 

With this example, your administrative and operations tasks qualify because of the Administrative Use Exception. 

 

Please remember I am not legally advising you to take the home office deduction and use the administrative use exception as your reason, so be sure to speak with your tax accountant regarding your business.

 

What Is Included With the Home Office Deduction?

 

When you qualify for the home office deduction, you can also include additional expenses such as mortgage interest, repairs, depreciation, insurance, rent, HOA expenses, maintenance, and utilities.

 

How To Calculate The Home Office Deduction?

 

Those who qualify for the home office deduction can choose one of two methods to calculate their home office expenses:

 

The Regular Method - Calculate the percentage of your home use for the business. Take the square footage of your home and divide it by the square footage of the portion used for business to determine the percentage. With this percentage, all direct expenses are deducted in full and indirect expenses are deducted based on the percentage.

 

For example, let's say your expenses, such as mortgage interest, utilities, repairs, etc., for the year totaled $36,000.

 

Now let's say the portion of your home used for business is 1,500 square feet, and your entire home is 4,000 square feet. You would take 1,500 divided by 4000. The percentage will be 38%

 

Now take the $36,000 in total expenses times 38%, and your home office deduction is a whopping $13,680. Can you say tax savings! 

 

The second method is much easier, but it doesn't allow substantial tax savings. It is called The Simplified Method.

 

With the Simplified Method, you use a rate of $5 per square foot. The maximum square foot you can use is 300. Therefore, your total deduction will be $1,500. That's five times the maximum size of 300 square feet. 

 

How To Claim The Home Office Deduction

 

Those who can claim the deduction will use Form 8829 Expenses for Business Use of Your Home. This form is available for both homeowners and renters. 

 

Hopefully, this provided insight into the Home Office Deduction. 

 

I recommend you speak with your tax accountant before attempting to take this deduction! All you have to do is call Say Yes To Profits. We will put your mind at ease. Yes, yes, yes!

 

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