2020 has been a challenging year for many, with the onset of the global pandemic and ensuing economic crisis forcing countless people to switch to working from home. Fortunately, the IRS has extended certain tax benefits to help offset the financial burden faced by workers who are still working remotely. In this article, we'll discuss the tax deductions available to you if you're working from home in 2021.
What Qualifies as a Home Office Deduction?
The IRS defines a home office deduction as a deduction for expenses related to the use of a portion of your home for business purposes. To qualify for the deduction, you must regularly and exclusively use the space for business purposes, such as conducting business meetings or keeping business records. You must also use the space for the majority of your business activities. For example, if you use the space for both business and personal activities, such as entertaining clients, you will not qualify for the deduction.
What Expenses are Deductible?
When claiming the home office deduction, you can deduct expenses related to the use of your home, such as rent or mortgage interest, utilities, insurance, repairs, and depreciation. You can also deduct a portion of your home office's expenses, such as the cost of furniture, office supplies, and equipment. You can also deduct certain costs related to the upkeep of your home office, such as cleaning supplies and janitorial services.
How Do I Calculate My Home Office Deduction?
To calculate your home office deduction, you must first determine the total square footage of your home office. Then, divide the total square footage by the total square footage of your home. This will give you the percentage of your home that is used for business purposes. Finally, multiply this percentage by the total amount of your qualified expenses to determine the amount of your deduction.
Are There Any Limitations on the Home Office Deduction?
Yes, there are certain limitations on the home office deduction. For example, if you are an employee and your employer reimburses you for your home office expenses, you cannot deduct those expenses. Additionally, the deduction is limited to the amount of income you generate from your business activities in the home office. Lastly, if you are self-employed and claim the home office deduction, you must also claim the self-employment tax.
Are There Any Other Tax Benefits for Working from Home?
Yes, there are several other tax benefits available to those who work from home. For example, you may be eligible for a simplified home office deduction, which allows you to deduct up to $1,500 for qualified home office expenses without itemizing your deductions. Additionally, you may qualify for a telecommuting tax credit, which is a credit of up to $500 for certain expenses related to telecommuting, such as internet and phone services. Finally, you may be eligible for the Earned Income Tax Credit, which is a tax credit of up to $6,660 for those with low to moderate income.
Conclusion
Working from home in 2021 can have its financial benefits, as the IRS offers several tax deductions and credits to help offset the costs associated with working remotely. Before claiming any deductions, however, it's important to understand the rules and limitations associated with each deduction. Additionally, it's important to keep track of your expenses throughout the year in order to maximize your tax savings.
