Home / Personal Finance / General / Stuck working from home? It won’t save you much on your taxes

Stuck working from home? It won’t save you much on your taxes

GaudiLab | iStock | Getty Images

If you’re working from home to reduce your exposure to coronavirus, don’t expect to write off the cost on your 2020 taxes.

Employees who work out of their abode full-time – including the legions of people recently ordered to practice social distancing – have lost a key tax benefit: the unreimbursed employee expenses deduction.

The Tax Cuts and Jobs Act, which went into effect in 2018, put this and other “miscellaneous itemized deductions” on ice.

“We’re bursting that bubble,” said April Walker, CPA and lead manager for tax practice and ethics at the American Institute of CPAs. “If you’re an employee, then it’s not an allowable deduction anymore.”

However, there’s a silver lining for independent contractors and entrepreneurs who are working from home.

In that case, they can still deduct qualified business expenses, including a write-off for their home office.

Home-office deduction

Independent contractors and other self-employed individuals must meet two requirements to take the home-office deduction.

First, you must regularly and exclusively use this home office to conduct your business. You can’t occasionally set up your laptop in your playroom or your man cave and claim it as a workspace, said Walker.

“Unless there’s a portion of the space that’s used exclusively for your home office, then you can’t count it,” she said. “That space can’t be used for anything else.”

Second, this office must be your principal place of business.

That means you must use your home office regularly and substantially to do your work, be it meeting clients or performing administrative or billing work there.

Two methods

Hero Images | Getty Images

If you meet the two conditions for maintaining a home office, you’ll find there are two ways to deduct the cost of your home office.

The “simplified option” allows you to deduct $5 per square foot of home used for work, up to 300 feet.

The regular method permits you to take a deduction based on the percentage of your home used for your job.

You can allocate and deduct the cost of your mortgage, taxes and other expenses attributable to your home office.

Three suggestions

If you’re still planning on getting something out of being cooped up in your home until the crisis subsides, keep these three suggestions in mind, according to Walker.

Only self-employed workers are eligible. Remember, if you’re an employee, you can’t write off any of these expenses.

Make this your official home office. You can’t just set up on your couch and work. Be sure to designate an area of your home for just business purposes.

Keep immaculate records. Once you’ve set aside your office space at home, be diligent in tracking your expenses. Save your receipts and consider using software to streamline your records.

“This is a good time to start doing that if you haven’t already been thinking about expenses,” said Walker. “At this time next year, you’ll be gathering your tax information and it’ll be a little easier.”

More from Smart Tax Planning:
Senate bill gives you a $300 tax break for charitable giving
You have until July 15 to save in your IRA
Congress will let you take $100,000 from your 401(k)

Source link

About Virgie Powell

Virgie B. Powell writes for Reiterment Planning and Tax Advice sections in AmericaRichest.

Check Also

Here’s what you need to know about coronavirus treatment costs

The last thing someone who contracts coronavirus needs to worry about is the cost of …

Leave a Reply

Your email address will not be published. Required fields are marked *