Home Personal Finance 7 Guidelines for Taking a Work-From-Residence Tax Deduction

7 Guidelines for Taking a Work-From-Residence Tax Deduction

7 Guidelines for Taking a Work-From-Residence Tax Deduction


For those who’re one of many hundreds of thousands of people that labored remotely in 2022, you could be questioning whether or not which means a candy deduction at tax time. Maintain up, although: The IRS has strict guidelines about taking the house workplace deduction — and so they modified drastically below the Tax Cuts and Jobs Act, which handed in late 2017.

7 Important Guidelines for Claiming a Work-From-Residence Tax Deduction

Eager about claiming a house workplace deduction in your tax return? Comply with these tricks to keep away from elevating any eyebrows on the IRS once you file your 2022 tax return, which is due on April 18, 2023.

1. You may’t declare it should you’re a daily worker, even when your organization requires you to work at home.

For those who’re employed by an organization and also you work at home, you’ll be able to’t deduct house workplace house out of your taxes. This is applicable whether or not you’re a everlasting distant employee or in case your workplace nonetheless hasn’t returned to in-person operations due to COVID-19. The rule of thumb is that should you’re a W-2 worker, you’re not eligible for a work-from-home tax deduction.

This wasn’t all the time the case, although. The Tax Cuts and Jobs Act suspended the deduction for miscellaneous unreimbursed worker enterprise bills, which allowed you to assert a house workplace should you labored from house for the comfort of your employer, supplied that you simply itemized your tax deductions. The regulation practically doubled the usual deduction. Consequently, many individuals who as soon as saved cash by itemizing now have a decrease tax invoice once they take the usual deduction.

2. When you have a daily job however you even have self-employment revenue, you’ll be able to qualify.

For those who’re self-employed — whether or not you personal a enterprise otherwise you’re a freelancer, gig employee or impartial contractor — you in all probability can take the deduction, even should you’re additionally a full-time worker of an organization you don’t personal. It doesn’t matter should you work at home at that full-time job or work from an workplace, so long as you meet the opposite standards that we’ll focus on shortly.

You’re allowed to deduct solely the gross revenue you earn from self-employment, although. Meaning should you earned $1,000 out of your facet hustle plus a $50,000 wage out of your common job that you simply do remotely, $1,000 is probably the most you’ll be able to deduct.

3. It must be a separate house that you simply use completely for enterprise.

The IRS requires that you’ve an area that you simply use “completely and frequently” for enterprise functions. When you have an additional bed room and you employ it solely as your workplace house, you’re allowed to deduct the house — and that house alone. So if your home is 1,000 sq. toes and the house workplace is 200 sq. toes, you’re allowed to deduct 20% of your house bills.

But when that house workplace additionally doubles as a visitor bed room, it wouldn’t qualify. Identical goes for should you’re utilizing that house to do your day job. The IRS takes the phrase “completely” fairly critically right here when it says it’s essential use the house completely for your online business functions.

To keep away from operating afoul of the principles, be cautious about what you retain in your house workplace. Images, posters and different decorations are nice. However should you transfer your gaming console, train tools or a TV into your workplace, that’s in all probability not. Even mixing skilled books with private books may technically cross the road.

A man works from home while watching his daughter.
Getty Photographs

4. You don’t want a separate room.

There must be a transparent division between your house workplace house and your private house. That doesn’t imply it’s a must to have a whole room that you simply use as an workplace to take the deduction, although. Suppose you’ve a desk space in that additional bed room. You may nonetheless declare a portion of the room so long as there’s a marker between your workplace house and the remainder of the room.

Professional Tip

A straightforward solution to separate your house workplace out of your private house, courtesy of TurboTax Intuit: Mark it with duct tape.

5. The house must be your principal place of work.

To deduct your house workplace, it must be your principal place of work. However that doesn’t imply it’s a must to conduct all your online business actions within the house. For those who’re a handyman and also you receives a commission to sort things at different folks’s homes, however you deal with the majority of your paperwork, billing and telephone calls in your house workplace, that’s allowed.

There are some exceptions should you function a day care middle otherwise you retailer stock. If both of those situations apply, try the IRS guidelines.

6. Mortgage and lease aren’t the one bills you’ll be able to deduct. 

For those who use 20% of your house as an workplace, you’ll be able to deduct 20% of your mortgage or lease. However that’s not all you’ll be able to deduct. You’re additionally allowed to deduct bills like actual property taxes, owners insurance coverage and utilities, although on this instance, you’d be allowed to deduct solely 20% of any of those bills.

Watch out right here, although. You may deduct bills just for the a part of the house you employ for enterprise functions. So utilizing the instance above, should you pay somebody to mow your garden otherwise you’re portray your kitchen, you don’t get to deduct 20% of the bills.

You’ll additionally have to account for depreciation should you personal the house. That may get difficult. Think about consulting with a tax skilled on this scenario. For those who promote your house for a revenue, you’ll owe capital beneficial properties taxes on the depreciation. Everytime you’re claiming deductions, it’s important to maintain good information so you’ll be able to present them to the IRS if vital.

For those who don’t wish to take care of intensive record-keeping or deducting depreciation, the IRS affords a simplified choice: You may take a deduction of $5 per sq. foot, as much as a most of 300 sq. toes. This methodology will in all probability end in a smaller deduction, nevertheless it’s easier than the common methodology.

7. Calm down. You in all probability gained’t get audited should you observe the principles.

The house workplace deduction has a infamous status as an audit set off, nevertheless it’s largely undeserved. Deducting your house workplace bills is completely authorized, supplied that you simply observe the IRS pointers. A extra doubtless audit set off: You deduct an enormous quantity of bills relative to the revenue you report, no matter whether or not they’re associated to a house workplace.

It’s important to be prepared in case you’re audited, although. Be sure you can present a replica of your mortgage or lease, insurance coverage insurance policies, tax information, utility payments, and many others., so you’ll be able to show your deductions have been warranted. You’ll additionally wish to take footage and be ready to offer a diagram of your setup to the IRS if vital.

As all the time, seek the advice of with a tax adviser or think about using tax prep software program like TurboTax or H&R Block should you’re undecided whether or not the expense you’re deducting is allowable. It’s finest to shell out somewhat more money now to keep away from the headache of an audit later.

Robin Hartill is a licensed monetary planner and a senior author at The Penny Hoarder. She writes the Pricey Penny private finance recommendation column. Ship your difficult cash inquiries to [email protected].



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