Guide to Home Office Tax Deductions in 2020


A guide to home office tax deductions 2020, specifically home office tax deductions for remote employees

Tax season scares most people if they need to figure out a home office tax deduction. In the first months of 2020, millions of Americans who weren't considered essential workers went from working in an office to working remotely. Many wondered if they could claim home office tax deduction for a remote employee to make the shift easier. Unfortunately, the rules are confusing to most people, so you might be more confused than ever. 

Here's what you need to know about the eligibility rules. 

How Your Employment Status Affects Eligibility

Working out the details of tax deductions can be challenging at the best of times. In 2020, it can feel like running a maze. You should know your employment status because different workers have different eligibility rules.

If you're a full-time employee, you're most likely a W-2 employee. This means you won't qualify for a home office deduction based on the Tax Cut and Jobs Act, which suspended "unreimbursed employee expenses."

If you're a 1099 worker, then you're considered self-employed. That makes you eligible for deductions. You might also be able to deduct your insurance, utilities like your internet and your cell phone, and some types of maintenance.

What Are the Criteria for Home Office Tax Deductions?

Knowing your employment status is only the first step in figuring out if you qualify for a home office tax deduction 2020. Complicating matters further, according to the IRS, you can only claim deductions on a home office if it meets two particular criteria:

  1. Regular and exclusive use
  2. Primary place of your business  

With a few exceptions, regular and exclusive use means you can only use the space for business purposes. If you also rent out your home office as a bed and breakfast for overnight guests, you're ineligible for deductions. This also means you can't use your bedroom, your kitchen, or your garage as a home office. 

The good news is that the "regular and exclusive use" rule applies to any kind of structure, so you can use an unattached garage or houseboat as a home office. This rule applies to homeowners and renters alike. (Renters should report their rent on line 19 of Form 8829.)

It doesn't apply to hotels, so if you spent the first few months of 2020 on the road, you can't claim your hotel room for home office deductions. 

The "primary place of business" rule means that your home office has to be where you do the vast majority of your business. That doesn't apply to most W-2 employees. 

Other Expenses

You can still deduct business expenses that aren't tied to your home office. Things like your telephone and internet bills, equipment costs, supplies, and salaries all count. You should list these on Form 1040, Schedule C, or Schedule F. They don't count against deduction limits for your home office.

You might also be able to deduct "unreimbursed ordinary and necessary expenses" you had to pay because of a partnership agreement. You should check Schedule E and Schedule SE on Form 1040 and Schedule K-1 on Form 1065 for instructions. 

How Should You Determine Your Home Office Deductions?

There are two ways to determine your home office deductions on Form 8829. One is relatively straightforward, and the other is much more complicated. 

Using the simplified method, you don't need to focus on your actual expenses. You multiply the square footage of your home office space - up to 300 square feet - by the set rate of $5 per square foot. You might also have to factor in carryover expenses from a prior year. 

When determining your actual expenses, things get much more complicated. You'll have to figure out your gross income, rent or mortgage, and real estate taxes. You'll also need to consider other business expenses. And don't forget about insurance, utilities, and repairs and maintenance. 

Using the simplified method is easier, but the actual expenses method allows you to get a tax deduction for your direct expenses. Each method has different benefits. The best way to choose which one works best for you is to figure out which will get you a larger tax deduction. 

The Simplified Method vs. Actual Expenses Method

The simplified method is based on the amount of square footage you use as a home office and sometimes carryover expenses from the last year. 

With the actual expenses method, you need to save your receipts. Keep your receipts for business expenses in a labeled folder so you'll be able to keep track of them. Save your utility bills and your cell phone bills. 

It would help if you also kept receipts for any equipment you bought for your business. We also recommend keeping receipts from any maintenance or repairs your home office needed during the past year. 

This won't be an issue for you if you use the simplified method. 

Don't forget about depreciation if you're using your actual expenses. This applies only to homeowners, who have to depreciate the value of their home. Depreciation is an income tax deduction you can claim to cover some of the cost as your property loses value over time. If you sell your home, you might lose some of the profit to capital gains tax

Again, with the simplified method, you won't have to factor in depreciation. You could potentially get a bigger tax deduction using the more complicated approach. But if you're doing your taxes yourself, it might be more trouble than it's worth. 

That's when you need the help of a professional.

Visit Us at ATAX

Figuring out your home office tax deduction eligibility can be hard, but it doesn't have to be. We at ATAX believe doing your taxes shouldn't be a frightening process. ATAX is proudly 100% Latino-owned, so we provide help with your taxes in English and Spanish. ATAX can help you with your personal taxes. We can also help you with bookkeeping, payroll, business taxes, and incorporations.

We have offices in 12 states across the country. Visit one of our offices today, or give us a call at 1-866-999-2829. 

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