People worked from home, even before the pandemic came. But with the pandemic, every single people started working from home. Technology gave rise to email, internet sharing, and video conferencing. Put all these together, and you have made a home office. This is a place where you can do all things that you do at your workplace but in pyjama bottoms! This arrangement proved to be much more convenient for many workers, and it also allowed some to take a tax deduction for the use of their homes as well. But only those who are self-employed, and it is called self-employed home office deduction. Deductions that self-employed people are allowed if they have a home office space used only for business purposes are home office tax deductions. Other than being self-employed, there are various other requirements that you need to fulfil in order to become eligible for the home office tax deduction.
Some major points that must be kept in mind are-
* The home office space or a certain portion of the home must be used exclusively for business purposes,
* The total deductible expenses should always be less than the total income from the business for a year,
* To calculate a home office deduction, choose between the two methods: the standard method or the simplified method.
Two important methods of calculating self-employed home office tax deductions –
- Standard option – With this method, you deduct all your actual expenses. You can deduct the total expense, i.e., 100% of some of your home office expenses, including the cost to paint or make repairs to that specific area. You can even deduct a portion of your property taxes and depreciation on the home. The calculations might seem tough at the beginning, but with the help of the instructions mentioned in IRS Form 8829, it can help you with the calculation.
- Simplified option – As the name suggests, it is a simpler option for deducting home office expenses as compared to the standard one, where you don’t even have to keep every receipt of all the expenses. You can simply deduct $5 per square foot of your home office, applicable up to 300 square feet, up to a total deduction of $1,500. As long as your home office qualifies and you are eligible for this tax deduction, without having to keep any receipts or records of your expenses.
With the simplified method, your home office square footage is multiplied by a predetermined rate set by the IRS. The standard method requires you to submit form 8829, with detailed information on your income tax return. You also are required to report the total deduction from your business income on Schedule C. Your deductions may be limited in case your home office expenses are more than the business income.
A simplified method is apparently an easy option, but there is always a possibility of losing out on some additional deductions by not using the standard method. The standard method is not complicated, but it definitely requires more in-depth knowledge, requiring you to keep a record of all your expense receipts. The most important requirement that applies to both methods is that the portion of the residence must be used exclusively for business purposes, then only self-employed home office deduction will be allowed.
Who is eligible for self-employed home office deductions?
Many people who set up temporary workspaces at home in the early months of the pandemic upgraded their home offices as they continued to work remotely. Some started their own business and set up home offices or even started doing some freelance work on the side. You may be eligible for the home office deductions as long as you have a certain income from self-employment services. Tax dedication in home offices is usually different from other taxes, and the rules relating to it are also quite strict when it comes to qualifying your office for the deduction. Like-
- Self-employed people, only after their home office qualifies, are allowed to claim the deduction. Apart from them, people who work from home as full-time employees, who work as a freelancer, or even were self-employed for just a few months, are all eligible to claim the deduction.
- It is very important that your home office space must meet the requirements that are necessary in order to claim the deduction. To qualify for a self-employed home office deduction, the most important requirement is that your home office space should be exclusively used for only business purposes. To have a home office space in a separate room is not necessary, but it must be an area of your home where you don’t do anything else apart from your business work.
Can you claim a deduction if you were self-employed only for a few months?
Yes, you can definitely claim the deduction even if you were only self-employed for a few months, as you can still claim a partial home office tax deduction. Use the expense for the months in which you were self-employed in order to calculate the total deduction. If you are eligible and decide to use the simplified deduction method, use the number of months you were working from home in order to calculate the amount for a deduction. Or if you choose to deduct a portion of your actual expenses for the months that you were allowed for the deduction.
Wrapping up
Setting up a home office is more than just owning a personal computer. Since you are already working and have quite a lot of tasks to finish, why not leave the tax deduction thing on FlyFin? They are one of the most trusted and experienced organizations in this field. If you want to avoid any unpleasant tax problems, do visit the website. They will apply it to the correct place so that you can properly claim your deduction. Feel free to write to them or contact them in order to get detailed information on this deduction method.
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