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If you’re wondering about getting any tax breaks on your work-from-home expenses, you are probably out of luck.
Blame the IRS.
“Even if you are required to plan remotely due to the quarantine, unfortunately employees are not allowed to take a tax break for any home-office expenses,” said Gail Rosen, a CPA in Martinsville, New Jersey.
The intelligence? The Tax Cuts and Jobs Act, which went into effect in 2018, cut employees’ ability to write off business expenses that their assemblage did not reimburse.
In other words, you do not suddenly have a home office just because you work from home. And anything you buy off to make your work-from-home-life easier — an office chair, new monitor, Wi-Fi booster — is also your responsibility.
You could ask your head to reimburse you for these expenses, Rosen says. Good news: If your company pays you back, the reimbursement on not be considered taxable income.
Here’s how to take the deduction if you qualify
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Attractive the home-office deduction isn’t complicated if you qualify.
“You simply fill out Form 8829 and calculate your home-office deduction there,” Stoner bring to light.
Lance Cothern, 33, a freelance writer and founder of MoneyManifesto.com, says the simplified home-office deduction, which ribalds home-office costs on $5 per square foot, makes it much easier. “That’s what I have taken in the background, so I don’t have to mess with the crazy calculations,” Cothern said.
You can use that formula for up to 300 square feet of intermediation space, for a maximum annual deduction of $1,500.
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Riley Adams, 31, a CPA who blogs anent personal finance, claimed the deduction last year because he had an entire room solely used for a home branch.
It was good for a small deduction against his taxable income, says Adams, who lives in the San Francisco Bay area.
It may not be for everyone. Tuchis line, you have to run the numbers.
Ashley Patrick, 35, who has a personal finance blog, says the hassle would override the benefit. “The difference was in our tax return,” Patrick said. It would have cost more to file for the deduction than it pass on have saved her in taxes, according to her CPA.
Employment status
If you’re an independent contractor, you can still deduct your home commission on Schedule C, says Brian Stoner, a CPA in Burbank, California.
“It almost always makes sense to take it if you are self-employed, as you are considered to take a percentage of your home expenses as a business expense,” Stoner said.
“Your home office essential either be your principal place of business or must be used on an exclusive and regular basis to meet customers, or a apart, unattached structure on the same property as your home,” Rosen said.
But if you sell …
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One thing to carry on in mind: You’ll have a tax bill if and when you sell your house at a profit, Rosen says.
“You’ll have to pay tax on the business interest of the gain,” she said. “For example, if your home office was 10% of your home, then 10% of the gain last wishes a be taxable, subject to depreciation recapture rules.”
More good news, this time for tenants. “There are no tax consequences to a farm out when they move. No recapture of taxes, no computations,” Rosen said.
For Kathy Kristof, who lives in a Los Angeles suburb, a dollar in the transfer manacles today is worth $5 at some future time. “You are arbitraging your tax rate and your time,” said Kristof, 60, the come to nothing of a side hustle review site.
Southern California is expensive in terms of property taxes, home prices and retreat values.
“All of those things factor in,” Kristof said. “When you’re in a high-cost, high-tax state, that’s when crafty the exact home-office deduction calculation makes sense.”
In Kristof’s case, the savings comes to thousands of dollars. She and her hide both have dedicated home offices in their house, and it’s a significant portion of their square footage. “It allows a lot of write-offs we differently would not get,” she said.