Work from Home? You May Qualify for These Tax Deductions

If you regularly work from home, you not only save gas money, but you may be able to save on your taxes, too. While not all taxpayers who occasionally work from a home office will qualify, it’s worth looking into the potential savings you’ll find with these tax deductions.

Tax Deductions Aren’t Limited to the Self-Employed

Many people assume tax deductions are intended to benefit small business owners who run companies out of their homes, but self-employed taxpayers, freelance workers, and employees may qualify. According to the IRS, there are six things you should keep in mind when considering the Home Office Deduction:

  • You must use a portion of your home exclusively and regularly to conduct business.
  • With storage, rental, and daycare businesses, you must use the areas regularly but not necessarily exclusively.
  • The amount of your deduction is based on the percentage of your home used for your business, and is limited if your gross income is less than your total business expenses.
  • Special rules apply if you are providing daycare or storing inventory or samples.
  • Self-employed taxpayers should use Form 8829 to calculate their deduction, which is then reported on your 1040 Form on line 30, section C.
  • Additional rules apply for employees who telecommute, especially if they must do so for the convenience of their employer.

It’s Getting Easier to Claim Your Work from Home Deduction

Some of those who telecommute hesitate to claim the deduction because the form itself is daunting. With 43 lines, Form 8829, Expenses for Business Use of Your Home, seems insurmountable, especially when the IRS expects you to allocate expenses, depreciation, and carryovers from other deductions. In fact, it could be reason enough to hire a professional to complete your taxes. Thankfully, starting in 2013, the IRS allows those who work from home to claim a deduction of $5 per square foot of space used, up to a total of 300 square feet (or $1,500 total) without doing any complex calculations. The trade off? The IRS notes the average work from home deduction is $3,000, which means you may leave money on the table for that convenience.

Make Sure Your Home Office Isn’t a Multi-Use Space

Whether you’re a stay-at-home mom or a home-based sales rep, you know the value of the square footage in your living space. While it may make the family happier to occasionally use your home office as a game room or bedroom for overnight visitors, the IRS generally expects the space you claim will be exclusively used either as a principal place for you to conduct business, or as a place where you routinely meet with customers or other clients. Less stringent rules apply if you work remotely out of a separate structure at your home, such as a converted detached garage. Not only can you make a great living working from home, you may also find substantial savings with these tax deductions and by cutting out expenses, such as gas and parking, which are associated with a more traditional work environment.