Are You Eligible for a Tax Deduction From the Ministry of the Interior?
As the pandemic escalates, millions of employees have switched to teleworking. According to a report by the Federal Reserve Bank of Dallas , 35.2% of employees worked from home in May, up from 8.2% in February. If you are now completely retired, you might want to know if you qualify for the Home Office Tax Credit, but the eligibility rules can be confusing. Here’s what you need to know.
Employee versus self-employed
The key to unlocking your home office tax credit is your employment status. Most of the staff members are W-2 employees. This means they go through the company’s payroll and can withhold income, social security, and health care taxes from each paycheck. Why it matters: W-2 employees cannot deduct unreimbursed work-related expenses until 2025 thanks to the Tax Cuts and Jobs Act.
But if you are a contract employee, in other words, a 1099 employee, you are considered self-employed and may be eligible for a home office tax deduction. You can also deduct expenses such as part of your internet bill, cell phone bill, or other work-related expenses.
What is considered a home office
While it might be tempting to take advantage of a home office deduction, there are some special rules to follow. First, your home office must meet the criteria for “exclusive and regular use” and “your primary business location,” according to the IRS . This should be a designated area (i.e. not the kitchen table) that you only use for work. The IRS provides several examples:
You can deduct the costs of a detached free-standing structure such as a studio, garage, or barn if you use it exclusively and regularly for your business. The structure does not have to be your main place of work or the only place where you meet with patients, clients or customers.
Typically, home office deductions are based on the percentage of your home earmarked for business use. So, if you are using an entire room or part of a room to run your business, you need to figure out what percentage of your home is dedicated to your business activities.
Publication 587 has a complete explanation of what exactly qualifies for a home office tax deduction. (There is no new version for 2020 yet.)
How to claim a home office deduction
This deduction is made on Form 8829 , which is linked toAppendix C , your form for calculating the profit and loss on a business. This means that you can still claim the head office tax credit, even if you use the standard deduction – and do not list the deduction – on Form 1040. There are two options for calculating the home office deduction: the simplified method or the regular method. If you are having trouble with these calculations – or if your office is eligible – you should speak with a tax professional.