The pandemic significantly changed the way people work, particularly many opting to self-employ and work from home in the post-Covid-19-era. Did you know self-employed people working from home can save big money on their taxes by availing of home office tax deductions? But, how can you get these deductions?
Who Identifies as Self-Employed?
Sole proprietors of businesses, independent contractors and freelancers are considered self-employed people, according to the IRS. However, those working from home as employees of a company may not qualify.
After the passage of the 2017 Tax Cuts and Jobs Act (TCJA), only those who are self-employed can qualify.
Who Is Eligible for Home Office Tax Deductions?
During the 2023 tax season, one can qualify for home office deductions only if they are self-employed. Self-employed people, including those working from home full-time and freelancing in the gig economy, can deduct home office expenses from their business incomes if their offices qualify.
Things to Keep in Mind
You may be eligible for home office deductions while filing your returns if you earned your income from self-employment in 2022, from home. For instance, if you worked as a consultant from your own home/apartment for a few months while looking for a full-time job, you can take the home-office deduction for this period. You can mention the income from self-employment as per Schedule C to be eligible for the home office deduction.
Also, note that the home space is considered your principal place of business where you regularly have client meetings. For instance, if you are a plumber and you work in different places but your administrative work and client meetings take place in your home office, this would qualify for deductions. One key condition required to avail of the benefit is using the home space for business exclusively and consistently.
You can get deductions for furniture and equipment by specifying them as business expenses under Schedule C. For example, the cost of purchasing a computer, printer, office chair and desk, and WiFi modem can be tax deductible as a business expense on Schedule C.
Keep in mind, if you are an employee of a designated office and working from home, you may not be eligible.
The IRS allows some exceptions. If you are providing daycare services for children or senior citizens at home, you can claim business deductions by providing a license to operate the business under state law.
Another exception is using the home as a space for inventory or product storage you sell in your business.
How to Determine the Value of Your Home Office Tax Deduction
There are generally two options for determining the home office tax deduction. The simplified version, however, may result in a smaller tax break. The standard option, on the other hand, needs extensive calculations and record-maintaining to offer a larger deduction.
In the regular method, your home-office deductions are based on the percentage of the home used for business. Taxpayers using a whole room or a part for business must mention the percentage they are using to get deductions. They get complete deductions for direct expenses. Measure actual expenditures against overall residence expenses and you can deduct maintenance, repairs, mortgage, utilities and insurance among others.
Under the simplified option, the rate of a square foot for business use of the home is $5 and the maximum they can mention is 300 square feet. This method allows a maximum deduction of $1,500. These deductions are better explained in Form 8829.
To maximize home office expenses, self-employed taxpayers can calculate expenses under both methods every year and assess which options provide better benefits. File your taxes with Beem. Estimate your Federal and State taxes with Beem’s Tax Calculator. Enjoy online tax filing with our 100% accuracy and get the maximum refund. Get started now.