
Working from home is becoming more common and popular in post-pandemic era.
Employees are able to choose to work remotely at home to avoid traveling between office and home.
Also, more and more people start to be a freelancer and self-employed during pandemic.
Working from home incur more residence costs.
So you may be wondering: Can I deduct all of the costs on my tax return as home office expenses tax deductions?
Am I Qualified for Home Office Tax Deduction?
1. Self-Employed
If you are:
- Business Owner, including Sole Proprietorship, Single Member LLC Member.
- Freelancer, Gig Workers etc. who hold 1099-NEC income.
People would ask: What if I work from home as a remote worker ?
Unfortunately, W-2 employees who work from home are not qualified for home office tax deductions.
Unless you are like me, I am a W-2 remote worker . And I have side hustle after my full time job work, I am able to take home office tax deduction for my side hustle portion of expenses.
Type of Property
Qualified properties include:
house, apartment including condo and co-op, mobile house.
Exclusive and Regular for Business
Would you write articles on you laptop at home?
Would you record podcast at home?
Would you have a zoom meeting at home with your client?
Would you have to do administrative works at home?
Choose a most comfortable spot and table for yourself.
As long as you have a space used exclusively and regularly for business related work, you can claim the deduction.
But be aware, if you have a business use of table in your main room, you may be ineligible for home office expenses unless you don't sleep in that room.
For example, I have a full time job in an Accounting Firm. After work, I spend at least 3 hours (Regularly) doing my gig work on my work table in the second bedroom (Exclusively) and I sleep in my main bedroom.
As you can see, I have my own exclusive gig work table in the second room and use it regularly for 3 hours every night, I am allowed to claim the home office expenses as tax deductible expenses.
If you have an additional 2nd bedroom, I highly recommend you utilized it as a exclusive room for gig works.
How to Calculate Home Office Expenses?
Step 1. Figure out the proportion of the home office area to the total home space.
First of all, you have to determine the square footage of your home office area. Then, find out the square footage of the entire home. (It can be found on Zillow) Finally, it comes up with the proportion of the home office area to the total home space.
For instance, Your apartment is totally 600 square feet. The home office space is 60 square feet which is 10% of your entire home. Therefore, 10% of total home expenses can be allocated to home office tax deduction.
Step 2. Choose the calculation method
Here are two ways to obtain write-off expenses.
1. Simple Method
The rate is $5 each square feet. You can deduct up to $1,500 and no proof of receipts required.
2. Actual Method
It is your actual spending of the residence expenses.
Total actual expenses multiply by the proportion % of the business use space. There is no limitation but should be reasonable deduction.
Actual Method will be more time consuming. Usually, you also have to keep all your receipts and records for those expenditure just in case.
What Kind of Expenses Can I Write Off as Home Office Deduction?
No matter your are a Renter or a Homeowner,
you are eligible for claiming home office deductions.
❙ Renter
The most common expenses for renting a house are:
- Rent
- Utilities
- Gas
- Internet
❙ Homeowner
Besides the basic residence expenses such as utilities, gas and internet, homeowners are allowed to claim the following expenditures:
- Mortgage Interest Mortgage Interest
- Property Tax
- Home Insurance
- Repair & Maintenance
- Depreciation
The rest of proportion of mortgage interest and real estate tax could be claimed as itemized deductions if applicable.
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