This gave rise to the home office, a place where you can accomplish all your tasks from the comfort of your home. Not only does working from home provide much convenience and flexibility, but it also allows people to avail of the benefit of tax deductions for using their homes as home office deductions. But there is a condition for people working from home. This scheme is not for the employees who work under an organization and have an employer who withholds their taxes from their paychecks. It is only applicable to those who are self-employed.
Along with being self-employed, you must meet certain other criteria to be eligible for a home office tax deduction.
The world is changing and getting advanced with technology. Indeed, even before the Covid pandemic, many individuals worked from home without having to go to the office. Earlier everything was on paper, but with the help of technology and innovation, the introduction of personal computers, the internet, emails, file sharing, online documentation, video conferences, and artificial intelligence automated almost every task. Combining all these innovations, it became easy to connect with people from any corner of the world and work together.
You need to be Self-Employed!
In the present world, the graph of the gig economy is taking a positive curve at a fast pace. Today many people have joined the army of freelancing and self-employed. Independent contractors, writers, sole proprietors of businesses, artists, musicians, and designers are all self-employed fellows who leverage the freedom of working from home and are eligible for tax deductions related to the home office.
Are you on a hybrid working model due to the after-effects of the coronavirus pandemic and working from home? Unfortunately, this mode of working is not accounted for a tax write-off for using your workspace as a home office since you work under a company.
Note: This tax relief is strictly for the self-employed, and you might need to demonstrate to the IRS through cost receipts and documentation that your workspace is your essential home office. Therefore, keep the records clean and updated.
The space should be a principal place for Business
There are two things that should be kept in mind before applying the home office deduction:
1. The tax deduction will only be applied for the home space, which is exclusively utilized for business work. If the area is used both for personal use and business use, it will not be qualified for a tax deduction.
2. The law says the space used for business should be utilized on a regular basis. The IRS will not consider the space a home office if you use it just a few times a year. No matter even if you use the space exclusively for work-related purposes!
What are the home office-related expenses that qualify for a tax write-off?
If you live in a rented house or rent a space to run a business, you can mention the monthly rent as a home office expense only for the area used as a business workspace. Rental properties are so expensive these days that this tax deduction is a big relief!
If you have the insurance for your home or property taken for business, you can deduct the tax on the expense of insurance that covers the area of your home dedicated to business.
Fundamental utilities of the home, such as power, gas, and water, come under personal use, but you can add the expense of bills of these utilities as tax deductions. But you can only add a portion of these expenses, not the entire bill cost when you have a home office.
4. Essential Home Items
There are many things that we use at home, such as toiletries, cleaning supplies, stationery items, diaries, etc., that can be partially deductible from the tax return.
5. Office furniture at Home
Any furniture item purchased for the home office workspace is a 100% non-taxable expense. It includes an office table, desk, laptop table, and chairs. That is completely tax-deductible as it is explicitly used for business purposes.
6. Internet Expenses
Today internet drives the world. It is one of the crucial factors in today’s economy. It is a basic necessity and a means of communication that connects people from all over the world. A good internet setup is the first requirement when you work from home. The internet data costs and Wi-Fi bills are considered as home office expenses and are tax-deductible under IRS guidelines.
7. Taxes on Properties
You can deduct the part of your real estate property while filing the tax return. You can also write off the mortgage interest expense related to the home office property.
If you use a landline connection, the telephone bill is considered as tax-deductible. But only the portion of the bill amount utilized for business purposes is non-taxable.
9. Home Office maintenance
When you work from home, all the costs of home office maintenance and repair can be written off, such as cleaning of the house, paint, renovation, etc. However, only the portion of a home office tax-deductible.
Freelancing is the new trend and is very fruitful in today’s fast-paced world. You can choose your preferred working hours and learn new skills. Work opportunities increase as you can work for multiple clients, and choose the projects you love. You could be more creative and work efficiently. However, with all the convenience comes the task of tax return. When you work from home and are self-employed, you are eligible for a home office tax deduction. These deductions are a blessing, depending upon how much you invest in your home office.
To compute these deductions, you need to precisely measure the area of your home used as a workstation. You can divide the measurement by figuring out the total area of your home. You can use the FlyFin App to track all your home office deductions. Its AI-based tax system keeps track of all expenses and notifies whenever a deduction is applicable. So, get your app today and never miss a deduction!