Tax Questions About Work-from-home Tax Deductions
Due to the continuing impact of COVID-19, many business owners have found themselves running their operations out of their homes for the foreseeable future. While this change will impact how your business functions, home-based operations will also influence your work-from-home tax deductions.
Common Questions About Working from Home
1. What's the Home Office Deduction?
The home office deduction is a valuable work-from-home tax write-off for individuals with self-employment income and business owners who are running their operations from home. It enables you to deduct a portion of your home's qualifying expenses, such as your:
Your deduction percentage will depend on the home office square footage in relation to overall square footage of the home. For example, if your home office is 200 square feet and you have a 2,000-square-foot home, you'll be able to deduct 10 percent of your eligible home expenses. To qualify for this deduction, you must have a dedicated space to run your business, like a spare room. You can't take the deduction if the room isn't wholly dedicated to your business operations. For example, if you normally do your business work in your home's rec room, but the space is also used for family gatherings, it won't qualify as a home office.
2. What's the Simplified Home Office Deduction?
If you haven't kept the best records for your work-from-home tax deductions, you don't have to forfeit your home office deduction. Instead, consider taking the simplified home office deduction for your business.
The simplified home office deduction allows you to deduct up to $1,500 for your home office. To calculate your deduction, you multiply the square footage of your home office by $5. For a home office that measures 200 square feet, this yields a deduction of $1,000. One downside of the simplified home office deduction is that it can result in lower work-from-home tax write-offs than the traditional home office deduction.
3. What Tax Benefits Are Available if You Still Have an Off-site Location?
Business owners who have maintained off-site locations may still be able to take advantage of the work-from-home tax deductions of running their operations from home. If you regularly and consistently conduct business for your company from your home office, you'll likely qualify for the home office deduction. This is true even if you've periodically used your off-site locations or, if you see clients in your home.
4. Are Virtual Employees Able to Take Work-from-home Deductions?
Employees paid via W-2 who are working virtually rather than in person don't qualify for federal work-from-home tax write-offs. Some states have tax deductions for employees working from home, but there are no federal deductions to offset the costs of setting up a home work station.
Learn More About Work-from-home Tax Write-offs with FAL
As a small business tax accounting firm, FAL’s financial experts are here to help you navigate the transition from on-site to virtual work. Contact us today at 702-870-7999 to speak to an expert about work-from-home tax deductions you may be eligible to claim.