Podcasts Business Retirement Starts Today Deducting Your Home Office in a Work from Home World, Ep # 190

Deducting Your Home Office in a Work from Home World, Ep # 190

Published: May 3, 2021, 8 a.m.

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Since 2020 was the year of working from home, you may be wondering how you can deduct your home office expenses from your taxes now that tax time is\\xa0upon us. For this reason, we explore an article written by Jeffrey Levine at\\xa0Kitces.com. Learn the home office deduction rules and discover if they will apply to your situation.

Outline of This Episode

  • [2:12] The specifics of the home office deduction
  • [9:19] How to calculate the home office deduction
  • [11:55] Should he open an additional IRA?

Who is eligible for the home office deduction?

Many small business owners can claim a home office deduction as a tax break. However, not every person working from home can claim this deduction. For instance, the deduction is\\xa0not\\xa0accessible for employees who work from their own home offices. People owning partnership interests, on the other hand, are potentially eligible for this\\xa0deduction. There are specific rules that need to be followed in order to determine\\xa0whether\\xa0your\\xa0home office qualifies.

What are the rules to claim the home office deduction?

In order to claim the home office deduction, there are requirements that must be met.

The home office must pass the exclusive use test. This test dictates that in order to claim a home office deduction, the portion of the home that is deemed the home office must be used\\xa0entirely\\xa0for business purposes.

Something that limits a person\\u2019s ability to claim a home office deduction, but not necessarily eliminates it, is the ability to claim a separately identifiable space within their home that is used exclusively for business purposes.

Another stipulation of a home office deduction is the regular use requirement. Occasional office use is not enough, even if the business is the only use for that particular space. It must be used regularly in order to qualify for the home office deduction.\\xa0

Another requirement is that the home office must be considered the taxpayer\\u2019s principal place of business for a particular business activity. This means that this is the space where the majority of business is done. Deciding on this can be tricky if you have a home office as well as one in an office building. When deciding on a principal place of business, individuals should consider both the amount of time they spend at their various business locations, as well as the relative importance of the tasks performed at each location.\\xa0

Because of the pandemic, many have had to shift work that they typically did in an office building to spaces in their homes. For the year 2020, people in this situation may be able to claim a home office deduction.

How to calculate the home office deduction

There are two ways that you can calculate the home office deduction. The regular method will calculate the actual expenses of using your home office space. The simplified method will calculate the square footage of your home office and multiply it by $5. The maximum deduction using the simplified method is $1500.\\xa0

If you are considering using the home office deduction it is important to work with your tax professional to ensure that you are within the detailed guidelines. Make sure to click on through to the article to learn all the details about claiming the home office deduction.

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