COVID-19 has caused most workforces to adopt a work from home (WFH) culture to maintain socially distancing safety measures. For millions of workers, remote work is a new concept, and as job uncertainty and unemployment continues to rise, many are left wondering if work expenses are tax-deductible. Once upon a time, remote employees could deduct home office expenses as itemized deductions on their annual tax returns. However, things have changed, and thanks to the Tax Cuts and Jobs Act (TCJA), employees can’t deduct home office expenses between the tax years of 2018 through 2025.
There’s an important distinction to pay attention to. Home-based employees can’t claim a home office deduction, however, the TCJA didn’t exempt home office expenses for the self-employed and independent contractors. This means that any self-employed person is eligible to deduct itemized home office expenses.
How to Qualify for a Home Office Deduction
Certain requirements must be met to qualify for a home office deduction. You must maintain and use a dedicated space in your home to conduct business. Calling yourself a remote worker and sitting with your laptop in different areas of your home doesn’t count. The space that you call your home office must be used exclusively for work.
Not all workers have the luxury of a separate, dedicated room to call a home office. You can work from one corner of your kitchen table and designate that corner for work purposes only, and this will qualify for the home office deduction. It’s okay to use a dedicated space in a multi-purpose room so long as you calculate the space and accurately figure the deduction.
Two Methods of Deduction
It used to be a rule that you had to calculate the amount of space dedicated to work operations and compare it with the total space of your home to determine your home office deduction. A second, simplified option came into play in the tax year 2013 stipulating a standard deduction of $5 per square foot of dedicated home office space up to a maximum of 300 square feet.
Working from home offers the convenience of a flexible schedule and relaxed environment while eliminating the hassle and expense of daily commuting. There are advantages to working from home, but you do have to think about how spending additional time at home affects your electric utilities. It doesn’t take much to cause your monthly electric bill to skyrocket and when working from home, you want to pay the lowest price possible for your electric service. Electric rates are calculated in kilowatts per hour (kWh) based on how much input power your appliances are using.
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Play it smart.
Working from home as an employee won’t qualify you for the home office deduction, but if you’re a self-employed or independent contract worker, you’re in luck. You’re required to set up a dedicated workspace for conducting business and only to consider space a home office. As soon as your dedicated office space is set up, you need to keep impeccable records of all business-related expenses by saving receipts and using a record-keeping software tool.
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After months of adapting to a work-from-home culture, the good news is that you could qualify for a home office deduction.