A Home Office Tax Deduction
Now more people work remotely from home, and that means a home office tax deduction. Even before the pandemic began, remote work was growing in popularity in the tech industry. Twitter decided to allow employees to work from home indefinitely and is the largest tech company to date to offer such an option — which could give its 5,100 employees in 35 offices around the world much more flexibility over where and how they work. The company planned to set up a decentralized work system before the novel coronavirus pandemic.
Hiten Shah, an entrepreneur who has worked remotely for 17 years, says of remote work, venture capitalists preferred to invest in companies with offices nearby, and office proximity was also a factor in determining start-up acquisitions. He said the coronavirus Companies embracing the cost savings of remote employees compared to having an office and all the things that come with that find it just ridiculous the cost savings.
More People Work Remotely from Home
Twitter said, “If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” said Jennifer Christie, Twitter’s head of human resources. “If not, our offices will be their warm and welcoming selves.”
Don’t Forget a Home Office Tax Deduction
The government loosened the eligibility rules for claiming a home office tax deduction to allow more self-employed filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. In Tax Tips for 2020, the IRS says,
- As always, you must use the space exclusively for business.
- Many taxpayers have avoided a home office tax deduction, thinking it was a red flag for an audit. If you legitimately qualify for the deduction, there is no need for worry.
- You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance, and housekeeping). The square footage of the office to the total area of the house provides the deductible percentage
- A middle-class taxpayer who uses a home office and pays $1,000 a month for a two-bedroom apartment and uses one bedroom exclusively as a home office can easily save $1,000 in taxes a year. People in higher tax brackets with more significant expenses can save even more.
A Home Office Tax Deduction Trap
Eliminated is one home office trap that used to scare away some taxpayers.
In the past, if you used 10% of your home for a home office, for example, 10% of the profit when you sold did not qualify as tax-free under the rules that let homeowners treat up to $250,000 of profit as tax-free income ($500,000 for married couples filing joint returns).
- Since 10% of the house was an office instead of a home, the IRS said, 10% of the profit wasn’t tax-free. But the government has had a change of heart. No longer does a home office put the kibosh on tax-free profit.
- You do have to pay tax on any profit that results from depreciation claimed for the office after May 6, 1997. You will find the gain taxed at a maximum rate of 25%. (Depreciation produces taxable profit because it reduces your tax basis in the home; the lower your basis, the higher your gain.)
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