Many people automatically assume working from home allows them tax deductions or credits. Unfortunately, that’s not how it’s set up to work. The availability of work-from-home deductions depend on whether you’re an employee or self-employed.
For most W-2 employees, federal tax no longer allows deductions for reimbursed employee expenses. This means any expenses such as: furniture, internet, or office supplies can’t be deducted on a tax return simply because you work from home.
For self employed individuals, they still may be eligible for tax deductions related to their home office and business operations. This is where the line gets tricky to understand.
Home Office Deductions for Self-Employed Individuals
If you’re self-employed and use part of your home regularly and only for business purposes, you may qualify for the home office deduction.
As mentioned before, expenses can include:
- A portion of your rent or mortgage
- Utilities
- Homeowners or renters insurance
- Repairs and maintenance
- Internet and phone expenses related to the business
- Office supplies and equipment
The IRS offers two methods for calculating your deduction. The simplified method allows taxpayers to deduct $5/sq foot of office space (up to 300 sq ft). Alternatively, taxpayers may use the actual expense method to deduct a percentage of qualifying home expenses based on the size of the office compared to the home.
Common Work-From-Home Expenses
Even when a home office deduction isn’t available, self-employed business owners may still deduct ordinary and necessary business expenses.
Just as in a typical brick and mortar business, common deductions include:
- Computers and monitors
- Software subscriptions
- Business phone service
- Professional memberships
- Office supplies
- Business related internet costs
Proper documentation is required when applying for any deduction. The best course of action is to keep your records safe and organized throughout the year to make tax season simple and smooth.
Are There Any Work-From-Home Tax Credits?
There are no federal tax credits made specifically for remote workers. However, some taxpayers may qualify for other credits related to their residence, including credits for energy-efficient home improvements or clean energy investments.
While those may not seem like they tie to remote work, they still provide meaningful tax savings for homeowners who make qualifying renovations.
Understanding the Rules Can Help You Maximize Savings
Working from home doesn’t automatically create tax deductions (even though we wish it did), but self-employed owners often have opportunities to reduce their taxable income through business expense deductions. Understanding the difference between being an employee and being self employed is essential when evaluating your potential tax benefits.
If you’re unsure which deductions may apply to you, reach out to us today to ensure you’re taking advantage of all available opportunities.
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