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Work from Home Tax Deductions – Everything You Need to Know

While remote working has been on the rise the past few years, COVID-19 led to a massive amount of the workforce to begin working from home. If you were one of the millions of people who started working from home, you probably saw a jump in extra expenses - higher utilities from being home all day, purchasing supplies and equipment that may have normally been provided in the office, or even upgrading your internet connection to boost speed and reliability. So, can you write these costs off on your taxes? We are sharing what you need to know about work from home tax deductions.

Are You Eligible for Work from Home Tax Deductions

The first thing to consider is whether or not you are eligible for any work from home tax deductions, and the answer is, unfortunately, probably not. If you are an employee of a business and receive a W-2 or a paycheck, you aren't able to deduct home office costs and expenses. The Tax Cuts and Jobs Act in 2017 eliminated a large amount of individual personal deductions and that includes work-related expenses, home office expenses, and other costs.

However, if you are a small business owner, self-employed, or are an independent contractor, you are able to deduct many of your expenses accrued from working from home.

Work from Home Tax Deductions for Self-Employed Individuals

If you are eligible for the deductions, these are the ones most often used that can make a large dent in your tax burden:

Home Office

The home office deduction can be incredibly valuable, but it's a bit complicated. Your home office area must be used only for your business purpose. This means that if you use your office to help your kids with your homework, play a video game on your computer, or even do home-related work like paying bills and doing taxes, you may not be able to use it. The IRS has a bit more information about the requirements to claim the home office deduction and a small business accountant will be able to provide more personalized information.

Phone and Internet

Most likely, you're relying heavily on your phone and internet to conduct business, and you may be able to deduct a portion of the cost under your home office expenses. Again, you can only deduct the amount you use for work, so if you use the internet 80 hours a week, but 60 of that is for streaming videos, scrolling social media, and browsing websites, you would only deduct 25 percent of the cost of your internet.

For your phone, we recommend having a separate phone line that is dedicated to work so that it's easier to track the cost and expenses.

Equipment and Expenses

As a small business owner or self-employed person, you can deduct a wide variety of other expenses used for work. While you may not have done a lot of travel or dining out in 2020, eligible expenses include:

  • Dining out with a client
  • Mileage for your car
  • Gas and plane tickets
  • Office supplies and equipment, such as a new printer or desk.

For tangible expenses like these, it's important to hang onto receipts and expense logs to ensure you can back up your costs in the event of an audit.

If you work from home, are self-employed, or a small business owner, it can be confusing to know exactly what you can deduct and what kind of breaks you may be eligible for. Having an experienced, knowledgeable small business accountant on your side can lead to more accurate returns and a smaller payment to the IRS. To schedule a consultation, reach out to us today at  919-420-0092 or fill out the form below to get started.

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