Nowadays, it seems as though just about everyone works from home. The ongoing pandemic combined with technological innovations has empowered people across the United States to work remotely. However, plenty of these WFH (work from home) participants are overlooking the home office deduction. Let’s take a look at whether you qualify for this deduction.
Do You Qualify for the Home Office Deduction?
Certain individuals who work from home qualify for a tax deduction applicable to money spent on home office expenses. The law pertaining to the home office deduction was altered in 2018, eliminating the deduction for individuals who work from home when employed by a business. However, those who are self-employed qualify for the home office deduction. Those who are working for an employer from home do not qualify for the home office deduction.
So don’t assume your employer is correct in stating you can qualify for the home office deduction simply because you are now working from home. The sad truth is some employers dangle this metaphorical carrot to tempt workers into remaining with the company instead of seeking greener pastures elsewhere. The bottom line is your home office expenses while working for an employer are not tax-deductible, meaning you cannot take the much-discussed home office deduction.
The Home Office Deduction in the Context of Self-Employment
Those who have income stemming from self-employment are eligible for the home office deduction, regardless of whether they are full-time freelancers or simply had a gig on the side that was completed from a home office. This means if you own your own business or performed consulting work on your own while in between jobs, you will qualify for the home office deduction. However, there are specific rules pertaining to qualification for the home office deduction.
The first requirement for qualification for the home office deduction is that income from your business must be applicable to this unique tax break. Home office expenses can be deducted from business income if you work full-time at home or work from home as a freelancer. This means even if you work for an employer from home, you can still qualify for the home office deduction as long as you also work as a freelancer on the side. Therefore, if you spent a couple months working for yourself in between traditional jobs, you will qualify for the deduction. What matters most is that you have income on Schedule C through self-employment in order to prove eligible for the home office deduction.
Home Office Standards for the Tax Break
Let’s shift our attention to whether your home office qualifies for the home office tax break. If your workspace from home does not meet the specific standards of eligibility, it will not qualify for the tax break. Above all, the part of your house or apartment used for work must be exclusively and regularly used for business purposes. However, this does not mean the office has to be in a completely separate room that is solely used for work. Rather, it has to be in an area of your home that is not used for other purposes.
As an example, a study room used for work will qualify yet a dining room table that you place your laptop on for work purposes does not qualify as this space is also used for eating. Contrary to popular opinion, there is no need for a wall to cordon off the area where you work from the rest of your home in order to qualify for the home office deduction. The area must be used for work yet it does not have to be completely closed off from the rest of your home. It is important to note that special rules are appliable to day care centers as well as inventory spaces.
Interactions With Clients
The space in your home used for work also qualifies for the home office deduction if it is an area where you meet with clients. Though you can also meet with clients in other areas, you cannot use every part of your home or other space used for client meetings as opportunities for the home office deduction. If you have any questions or concerns as to whether the part of your home used for work qualifies for the home office deduction, reach out to your tax advisor for guidance tailored to your unique WFH situation.