If you have recently started your business, one of the perks you may qualify for is the work-from-home tax deduction. The work-from-home tax deduction is available to business owners with a home office primarily used as an office space. Amidst the recent surge of remote work, claiming the work-from-home tax deduction can help companies reduce their taxable income.
Home Office Deduction
Business owners seeking to claim the home office tax deduction must complete IRS Form 8829 and a Schedule C form. The list of deductible expenses includes the following:
- Mortgage interest
- Insurance
- Utilities
- Maintenance
- Repairs
- Rent
- Depreciation
For a space in your home to qualify for the deduction, you must use the room exclusively and regularly for business purposes. However, business owners working outside the home may still be eligible if their home is the primary work location. In addition, those who perform administrative activities at home but work elsewhere may qualify.
To calculate the work-from-home tax deduction, taxpayers can choose from two methods, the simplified and regular options:
The simplified option has a rate of $5 per square foot for business purposes. Taxpayers can use up to 300 square feet of office space for a maximum home office deduction of $1500.
The regular method calculates the tax deduction based on the percentage of the home used for business activities. For example, if you own a 3,000-square-foot house and the home office is 300 square feet, you can deduct 10 percent of all deductible expenses, including housing payments, insurance, utilities, and maintenance. The regular method can result in a larger tax deduction but typically requires more time.
Employee Work-From-Home Deduction
If you have employees who primarily work from home, you may be able to help them claim tax deductions. While the majority of W-2 employees are no longer eligible to claim a work-from-home tax deduction after the Tax Cuts and Jobs Act, there are a few types of employees who still qualify, including:
- Performing artists: Actors, musicians, dancers, etc., can deduct performing arts-related expenses such as website costs, travel, costumes, professional photography, and more.
- Employees with disabilities: People with disabilities can deduct expenses related to their disability, such as attendant costs and equipment necessary to do their job.
- Kindergarten through 12th-grade educators: Teachers, counselors, principals, and aides can deduct up to $250 of out-of-pocket expenses, including supplies, books, equipment, and professional development courses.
Employees who fit into any of the above criteria must fill out IRS Form 2106 to file a claim for business expenses. Figuring out how to receive the work-from-home tax deduction can get complicated. Reach out to a qualified tax professional to help reduce your organization’s taxable income.