Tax Tips for Remote Workers: Can you claim the home office deduction on your tax return if you worked from home?


Tax Tips for Remote Workers: Can you claim the home office deduction on your tax return if you worked from home?
You may claim the home office deduction on your tax return if you used part of your home for business. U.S. tax law allows you to deduct expenses related to the business use of your home on your tax return. The tax deduction applies to both homeowners and renters as well as all types of homes. You determine the amount of expense related to business use based on a standard rate provided by the IRS or a calculated rate established by the percentage of your home utilized specifically for business. The two requirements to claim the home office tax deduction include: (1) regular and exclusive use and (2) principal place of your business.

Because the COVID-19 pandemic required millions of people to work from home during 2020, many people are wondering if they can claim the home office tax deduction on their 2020 tax return. Below, I will explain in detail the home office deduction requirements to help you determine if you can deduct home office expenses on your tax return. Fair warning, most people will not be eligible.

Can you claim the home office tax deduction on your 2020 tax return?

As I warned above, if you worked from home during the shutdown, do not plan to deduct home office expenses on your tax return. The ability to claim the home office tax deduction depends on your employment status. If you are an employee (rather than an independent contractor or self-employed individual), you cannot deduct any business related expenses, which includes home office expenses.

 Unfortunately, the Tax Cuts and Jobs Act (TCJA) enacted in 2018 eliminated the tax benefit for employees. Prior to TCJA, employees could deduct business expenses under miscellaneous itemized deductions, which included unreimbursed employee expenses. However, TCJA eliminated miscellaneous itemized deductions; therefore, employees no longer can claim a tax benefit related to business expenses.

However, as hinted at, self-employed individuals, entrepreneurs, and independent contractors working from home may be eligible to deduct qualified business expenses, which includes home office expenses.

You must prove that you meet the requirements stated above. First, you must prove that you use your home office regularly and exclusively for business use. For example, if you have an extra room designated as a home office for exclusive business use, you meet this requirement. You cannot claim the home office deduction if you simply occasionally work from said room and/or use the space to conduct non-business matters. Secondly, you must prove that the home office space is your principal place of business. In other words, you must show that you use your home office space substantially to conduct your work. Substantial use can be demonstrated through meetings, client visits, customer visits, administrative work, etc. taking place in your home office space. It is important to note that substantial use does not mean absolute use. If you conduct regular and substantial business in your home but also conduct business at a location outside of your home, you may still qualify for the home office deduction.

The burden of proof falls on the taxpayer. You must be able to prove that you meet the requirements to claim the home office tax deduction on your tax return. It is important to keep detailed records tracking your business operations (i.e. business activities taking place in the home office) and business expenses. If proven, you will be able to deduct home office expenses based on the simplified or regular method on the Form 1040 Schedule C, which includes but is not limited to mortgage interest, rent, home insurance, utilities, repairs, and depreciation.

I hope the tax tips and tax knowledge shared in the post helped you learn more about the tax rules surrounding the home office tax deduction. Please share with others to help them learn about who can claim the home office tax deduction. As always, for any and all questions and concerns, please comment below, email me directly, or connect on my social media pages.

Disclaimer: As stated in my disclaimer page, this post and all posts on Textbook Tax are informational only and are not intended as tax advice. For tax advice, please consult a tax professional.

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