Technology has made a hybrid work environment and work-from-home a new standard. Working in your pajamas on your couch sounds like a perfect way to execute your office chores. What’s even better is that you can save money on your income tax by writing off the home business expenses. But how do you know if you qualify for the home office deductions?
A self-employed tax calculator is your ideal tool to calculate your taxable income for the year, deductions, and credits you are eligible for. But, before we get there, let’s learn more about home office deductions.
Who’s Eligible for Home Office Deductions?
Everyone who’s working from home is eligible for home office deductions. However, it’s only applicable to self-employed individuals running a small business or working a side hustle. There are certain conditions you must meet to qualify for this deduction. For instance, if you were forced to work at home due to the COVID pandemic, you won’t be considered eligible for a home office deduction. Check out the 2017 Tax Cuts and Jobs Act to determine if you can deduct the expenses incurred while running a home business.
The Space Must be Used for Business Only
IRS has certain regulations when it comes to home office deductions. You must have a space dedicated solely to business use. You can’t use this corner of your room for any purpose other than work, and the IRS might ask for proof that shows you use the space exclusively for business.
Secondly, you should use this business space regularly. Put it this way; your home office is not considered deductible if it’s used for personal requirements. Likewise, if you have a space exclusively dedicated to business but used only a few times a year, it doesn’t qualify for a deduction.
Many tax filers have been disqualified for home office deduction as they were unable to prove that they used the space exclusively and regularly for business. People offering childcare services are exempt from this rule. For daycare service providers, IRS requires you to show the space used for business and the number of hours you provide the service. Those running multiple home office businesses must use the deductions carefully as if any of your space doesn’t meet the above criteria, you might end up with zero home office deductions.
Calculation of Home Office Deduction
The easiest way to calculate your home office deduction is by following the simplified method that requires you to fill out Form 8829. First, you need to calculate the space used for business in square footage and divide it by the total square footage of your home. The output shows the percentage you can deduct for the home office.
For example, if 15% of your home is used for business, you can subtract 15% of utility bills, Wi-Fi, phone bills, and other home expenses from your income tax. If you take the standard deduction, you can save up to $1500 on your tax bills.
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