The number of people working remotely has increased as the pandemic has set in, and while some have returned to the office, others are still working from home. People started home businesses or new careers when they were made redundant or quit their jobs.
There are many expenses that small business owners face, and one of the highest are office rental costs. If you and your employees work remotely, you can sublet that space or sell it if you own it. Tap or click here for more money saving tips for your small business.
You can deduct legitimate expenses from your taxes if you work from home. There are restrictions and rules, so the amount you can deduct will vary, or you may not qualify at all. Read on to find out if you are eligible.
Here is the backstory
Instructions for IRS Form 8829 state that “you can deduct business expenses that apply to part of your house only if that part is used exclusively for a
base. âThis includes conducting your business or trading in the space on your own or receiving customers, clients and patients there.
The importance of what you do there and the time you spend there are two essential factors that contribute to your home office being considered your primary place of business.
If you carry out administrative or management activities at another fixed location, this will reduce your eligibility. For example, if you spend most of your time in an office away from home doing billing, you could be disqualified. However, you can ask an outside company to invoice from their location.
You can also deduct expenses related to the inventory you store in your home. If you sell electronic devices online and ship them from your home, it counts as inventory.
If you regularly operate a home day care center, you may be able to deduct business expenses. Do you have children under the age of six? Tap or click here to see if you qualify for the Child Tax Credit.
You don’t need to own the house in which you operate. There is space on the form to enter the amount you are paying in rent.
No deduction for W-2
Here’s bad news for most regular remote workers. CNBC recently reported on a exception for certain workers, as the IRS said in a September 2020 reminder: âEmployees who receive a paycheck or W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working at residence. ”
This came with the Tax Cuts and Jobs Act of 2017, which prohibits these workers from taking advantage of the deduction from 2018 to 2025.
The space that you declare as a home office should be used for this purpose only. For example, if you work in your living room but your family also uses that room for watching TV, you will probably have a hard time getting a deduction.
Fill out form 8829
You can download Form 8829 and get instructions and more information on irs.gov/forms-pubs/about-form-8829. The form has four parts:
- Use Part I to determine how much of your house is used for your business. You divide the square footage of your office by the total square footage of your home and enter the result as a percentage. Household expenses such as insurance, utilities, repairs, maintenance, and depreciation can be deducted, but only up to the total percentage of the space you use in your home for your business.
- Use Part II to enter your total business income and deductible expenses.
- Use Part III to enter the amount of depreciation on your home.
- If your expenses are greater than the limit for the current year, you can carry the excess forward to 2021. Enter this information in Part IV.
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