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Can you take a Home Office deduction in your taxes? Let’s find out

Nowadays, it is more common to find people working from home after so many companies had to close their doors during the Pandemic. For many companies this “new” method was saving them money and some have decided to make the change permanent.

Now that is time to file your taxes, you must be wondering if you can take advantage of the Home Office Tax Deduction.

We want you to be aware of the requirements to be able to take it in order to avoid future not that pleasant surprises.

Who can claim Home Office Tax Deduction?

Home office tax deduction can be claimed only by self-employed individuals such as business owner filing under a Sch C, freelancer, and anyone who works for themselves

What qualifies as Home Office:

It is really important to mention that you must use the space you designated as your office exclusively for business purposes. It can be located in an open room like your living area. However, you can only deduct the square footage that is being used as “office space”. Simply measure the space you use for your office.

How to calculate your Office Deduction:

There are two ways to calculate the amount to be deducted. The simplest way is to multiply $5 to the square footage mentioned above. You have up to 300 square feet of office space, giving you a $1,500 as a deductible amount.

If you consider you have more than $1,500 of deduction, you can then use the second and more complex method. For this you will need to keep track of the cost of your home office.

Here is a list of the expenses that you can take into consideration.

Home expenses: These include rent, mortgage interest, real estate taxes, homeowners insurance, home repairs, electricity, and gas.

Internet: You can deduct only the amount used for business purposes.

Business equipment: furniture, computers, electronic devices, and office machines as eligible as long as is used only for business purposes.

Depreciation: Computers and most office equipment can be depreciated over five years, while office furniture can depreciate for seven years. You have the option to deduct the full amount of the depreciation or gradually subtract a portion of the total value each year.

This being said, always keep in mind that you can only take a percentage of the amount equal to the percentage that your home offices represent. Meaning, if your office takes only 10% of the space of the house, only a 10% of the expenses can be deducted.

Unfortunately, if you are a W-2 employee you can not claim Home office deduction. You can always talk to your employer to take into consideration reimbursing you for reasonable and necessary expenses.

There are only a few states that allow you to deduct business expenses that the employer didn’t reimburse you for like Alabama, Arkansas, California, Hawaii, Minnesota, New York, and Pennsylvania under the state tax returns.

Every state has different rules, always consult Tax Professionals. If you are looking for Tax Preparation Assistance please contact us or book a call.

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