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Take Advantage of the Home Office Deduction

August 20, 2020

Small business owners and self-employed taxpayers, you’re likely looking for ways to save on tax given the current climate…take advantage of the home office deduction if you’ve been working from home.

Are you a small business owner or self-employed working from home? You may qualify for a valuable tax deduction. Working from home has become the new normal in 2020, and many taxpayers may be wondering if they can claim the home office deduction when they file their tax return next year. Here are some things you should be aware of when looking to claim this valuable deduction.

What is the home office deduction?

If your home is your principal place of business, you may be able to deduct related expenses. The home office deduction is available for homeowners and renters, and applies to all types of homes.

To qualify, you must be:

  • Regularly using part of your home exclusively for business. Using an extra room to run your business? You can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
  • Using your home as your principal place of business. You meet this requirement in certain cases if administrative or management activities are conducted at the home and there is no other location to perform these duties. Hence, someone who conducts business outside their home but also uses a home office may still qualify.

Some things to note:

  • W-2 employees cannot claim the deduction. This is an unfavorable change from the Tax Cuts and Jobs Act. Even if you work from home full time, you are no longer able to benefit. You need self-employment income to qualify.
  • The form to claim the deduction is Form 8829
  • There are certain expenses taxpayers can deduct including mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
  • A “home” for purposes of this deduction includes a house, apartment, condominium, mobile home, boat or similar property (could include unattached garage, studio, barn or greenhouse). It doesn’t include any part of your property used exclusively as a hotel, motel or inn.

2 calculation options

Taxpayers have two options to calculate their home office expense deduction:

  • The regular method divides expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040 Schedule C and compute the home office deduction on Form 8829.
  • The simplified method allows taxpayers to use a rate of $5 a square foot for business use of the home. The maximum deduction is $1,500.

Do you think you may qualify? Reach out to us and we can walk you through the process.

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