Home Office Tax Deductions, Explained

Millions of Americans will be working from home this spring in order to self-isolate during the coronavirus pandemic. Many might be wondering if they can deduct home office expenses from their taxes and the answer is: it depends. While the self-employed and freelancers are allowed to deduct a portion of their office expenses as long as they use the room solely as a workspace, most W2 employees won’t qualify for the deduction. Ultimately, it depends on your specific situation, including what type of work you do and whether or not you use your office for other activities.

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Home office deduction requirements

The IRS has a variety of requirements when it comes to your eligibility for the home office deduction. These include:

  • Regular and exclusive use ­­­— As a general rule, you can’t use your home office for anything except work if you’re going to deduct it on your tax return. If you work out of a kitchen or bedroom, for example, those rooms wouldn’t qualify. The space also won’t qualify if you use your office for other activities unrelated to work.
  • Workspace requirements — The office must be either your principal place of business, a place where you meet clients or customers or a freestanding building (like a garage or a studio). If you have another place of business where you do the majority of your work and you don’t meet with clients and customers in your home, you probably won’t be able to deduct your home office.
  • Self-employed — Many self-employed people qualify for the home office deduction, as long as they use a dedicated office exclusively for work-related purposes.
  • Employees — Employees of other businesses don’t qualify for the home office deduction since they are no longer allowed to claim employee expenses for business use on their tax returns.

Many people working from home during the pandemic won’t qualify since they are still W2 employees working remotely. In many cases, self-employed business owners and independent contractors may be able to deduct home office expenses, as long as they used their office exclusively for work. It’s not a good idea to claim the home office deduction if you don’t use your office exclusively for work – if you’re audited, you’ll have to prove to the IRS that you don’t use the room for any other purpose.

Even people who don’t qualify for the home office deduction, however, may be eligible for a variety of other deductions when it comes time to do their taxes. These include:

  • State and local tax deductions
  • Home mortgage tax deductions
  • Charitable donations tax deductions
  • Student loan interest deductions
  • Medical and dental expense deductions

Freelancers and the self-employed can also deduct a variety of other business expenses besides their home office. These include:

  • Utilities
  • Professional development costs
  • Website costs
  • Software costs
  • Mileage and travel expenses
  • Office supplies

How to track your expenses

If you do qualify for a home office deduction, you’ll want to track your expenses in order to get the biggest deduction possible, as well as to protect yourself in the case of an audit. If you use the simplified option when it comes to the home office tax deduction, you can deduct $5 per square foot of your home office. The regular method lets you deduct a portion of the expenses related to the office, including mortgage interest, insurance, utilities, repairs and depreciation.

In general, it’s a good idea to keep all potentially deductible expenses organized in one place. This can take the form of a physical notebook or folder where you jot down expenses and store receipts or it can be a digital folder in your email or on your computer where you keep track of things you might want to deduct. It’s important to retain proof of any expenses that you intend to deduct. This not only makes it easier to add everything up at tax time, but also protects you in the case of an audit. You should never claim any false expenses or inflate expenses in order to claim a deduction.

How to deduct home office expenses from your taxes

In order to deduct home office expenses, you’ll need to list them when you file your taxes. If you use tax software to file your taxes each year, it will usually prompt you to list any deductions you may be eligible for. Tax software like H&R Block, TurboTax, TaxAct and TaxSlayer can all help you take advantage of any potential deductions. If you choose to use tax software, make sure to take advantage of any free file programs you may be eligible for. If you make $69,000 or less, you may be eligible to file your taxes for free, even if you’re self-employed or have a more complicated tax situation.

If you choose to file your taxes by paper or get help from a tax preparer, you can still take advantage of the home office deduction. You’ll have to file Form 8829, Expenses for Business Use of Your Home. Make sure to take advantage of any other related deductions as well, like utilities, bills and more.

The bottom line

If you work from home and are self-employed, you may be able to deduct your home office on your taxes. In order to be eligible for the home office deduction, you should use your home office exclusively for work-related activities. The office should be either your primary place of business, a space where you meet clients and customers, or a freestanding building like a garage or shed. Only claim the home office deduction if you’re sure you qualify – you may have to prove it in the case of an audit.

Even if you don’t qualify for the home office deduction, there are still a variety of other deductions that you may be able to take advantage of. If you’re self-employed, you can deduct all kinds of business expenses, including professional development, office supplies, website and marketing costs, equipment like computers and more. If you’re a W2 employee who works from home, you probably won’t be able to deduct office expenses, however. It’s also important to keep in mind that the standard deduction is $12,200 for 2019 taxes, so you may not have enough expenses to make itemizing worth it. If you’re not sure whether or not you qualify for a specific deduction, you should check with a tax professional before claiming it on your tax return.

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