What you should know
- You cannot claim the home office deduction as a full-time employee with W-2 income, but it may be possible with 1099 income as a contractor or self-employed person.
- To qualify, you must use your home office regularly and exclusively for work, and there are two ways to calculate the tax relief, according to the IRS.
If you are one of the millions of Americans who worked remotely, in whole or in partIn 2022, you may be wondering about the home office deduction on your taxes.
Although the remote work has declined since the early days of the pandemic, nearly 30% of employees were working remotely in January, according to the Workforce Confidence Index the Linkedin.
However, many of these workers cannot claim the home office deduction, said Brad Sprong, national tax manager for KPMG Private Enterprise.
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You will not be eligible for the home office deduction with employee income. Form W-2. But you may qualify with income reported through the Form 1099 as an entrepreneur or self-employed.
Assess the IRS guidelines for your workplace
Your workspace must meet certain IRS Guidelines to qualify for the deduction, said Rob Burnette, executive director of the Outlook Financial Center.
Based on the square footage of a specific area of your home, you should use your “home office” exclusively for work, he said. And the IRS expects it to be the principal location of your business, used regularly.
“It doesn’t have to be a room surrounded by four walls,” Sprong said, noting that it could be a designated 200 square foot area in your home. But “it would be hard to argue that your kitchen table is exclusively for business,” he added.
Calculate the home office deduction
There are two ways to calculate the home office deduction: the “simplified option” and the “regular method”, depending on IRS.
The simplified option uses a standard deduction of $5 per square foot for the portion of your home used for business purposes, capped at 300 square feet or $1,500.
The usual method, which is more complicated, uses the percentage of your home used for business purposes, including actual expenses, such as part of your mortgage interest, insurance, utilities, repairs and depreciation. . The calculation is done in the Form 8829.
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“The simplified method is my preferred method because most people don’t have enough records or deductions for the regular method to work,” Burnette said. It usually calculates it back and forth so that new clients see which option offers the greatest tax reduction.
Of course, some taxpayers may obtain a greater tax reduction using the usual method. “While it’s heavier, it’s a lot more beneficial because the simplified option is capped at $1,500,” Sprong said.
But when using the usual method, it is important to have documentation to show proof of your deductions. “If you’re brought in for an audit, that’s a priority area for the IRS,” he warned.
When filing your tax return with the IRS
This article It was originally published in English by Kate Doré, CFP®., for our sister network CNBC.com. To learn more about CNBC, enter here.