What Expenses Can You Deduct While You Work from Home?
Plan your expenses and deductions strategically each year
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For Employees
Until the 2018 tax year, employees who worked from home could deduct specific expenses related to their jobs. Unfortunately, this is no longer the case. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, eliminated these deductions for anyone who works from home for an employer. So if your boss has instructed you to work from home for now, you may want to speak with an accountant to see how you can benefit from any tax deductions.
For the Self-Employed
If you’re a contract worker, freelancer, or entrepreneur, your situation will be different when it comes to preparing your tax return. There are a number of expenses you may be able to deduct, including:
- Your home office
Do you have a designated area in your home that you only use for work? The IRS considers that a tax-deductible expense. Keep in mind, your home office is only eligible if it is used for your work and nothing else – for example, it can’t be a kitchen table that you share with your family. If you aren’t sure whether your home office counts, a tax preparation service can answer your questions.
If your workspace qualifies as a home office, there are two ways to claim it as a deductible expense:
- The standard option. The standard way to claim a home office is to determine how much space in your home is occupied by your workspace. For example, let’s say you work in a room that’s 200 square feet, and your house is 2,500 square feet total. That means 8% of your home is used for work, so you can deduct 8% of expenses such as rent or mortgage payments, utilities, and renter’s or homeowner’s insurance.
- The simplified option. The simplified way to claim a home office deduction doesn’t require as much recordkeeping. You can simply deduct $5 per square foot of your workspace up to 300 square feet. It’s an easier option but may result in a smaller tax deduction.
So which option is preferable? That depends on several factors, including the size of your home office and how much your rent or mortgage payments are. A tax preparation service can help you crunch the numbers to see which option would save you more money.
- Office supplies
Whenever you buy something you need for work, whether it’s a pack of pens or a new computer, make sure to keep the receipt on file. When it’s time to file your taxes, you’ll be able to claim these costs as business expenses.
- Internet and phone use
The portion of your internet and phone use that’s directly related to your work can be a deductible expense. This means your entire bill is probably not deductible, but a percentage of it can be. For example, if you’re working for 50% of the time you’re online, 50% of your internet bill would count as a business expense. If you have a second phone line that you use exclusively for business, 100% of that phone bill counts as a business expense.
- Vehicle use
You may be staying home as much as possible due to the coronavirus, but maybe you need to get in your car occasionally. Any time you drive somewhere for business purposes, the cost of gas and other expenses are tax-deductible. If you’d like to claim this expense, it’s important to have careful records of each trip you took as well as any vehicle-related expenses you’ve paid, including registration fees and maintenance.
- Advertising
Have you spent any money to promote your business or services online, in print, or anywhere else? Make sure you keep records of all of your advertising costs. You can claim them as a business expense when you’re working on tax preparation.
- Health insurance
If you pay your own health insurance premiums and aren’t eligible for coverage by a spouse’s insurance, your insurance may be a deductible expense. If you also pay premiums for a spouse or any children, those are deductible.
Depending on the details of your business and finances, there are additional deductions you may be eligible for. When in doubt ask the professionals.
Tax Preparation Support
Crunch Consulting provides financial services, including tax preparation, for individuals and businesses of all sizes. We strive to take the chore of taxes off your plate and help you get the most out of your taxes. Your first 40-minute consultation is completely free.
