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If you’re one of the millions of Americans who worked remotely — fully or partially — in 2022, you might be wondering about the home office deduction on your taxes.
While remote work has declined since the early days of the pandemic, nearly 30% of employees were working from home in January, according to LinkedIn’s Workforce Confidence Index.
However, many of these workers cannot claim the home office deduction, said Brad Sprong, national tax manager for KPMG Private Enterprise.
Evaluate IRS guidelines for your workspace
Your workspace must meet certain IRS guidelines to qualify for the deduction, said Rob Burnette, CEO of Outlook Financial Center.
Based on the square footage of a specific area of your home, you should use your “home office” exclusively for work, he said. And the IRS expects it to be the main location of your business, used regularly.
“It doesn’t have to be a room surrounded by four walls,” Sprong said, noting that it could be 200 designated square feet in your home. But “it would be hard to argue that your kitchen table is exclusively for business,” he added.
Calculate the home office deduction
There are two ways to calculate the home office deduction: the “simplified option” and the “regular method,” according to the IRS.
The simplified option uses a standard deduction of $5 per square foot of the portion of your home used for business purposes, capped at 300 square feet, or $1,500.
The regular method, which is more complicated, uses the percentage of your home used for business purposes, including actual expenses, such as a portion of your mortgage interest, insurance, utilities, repairs, and depreciation. . The calculation is done on form 8829.
“The simplified method is my preferred method because most people don’t have the records or enough deductions to make the regular method work,” Burnette said. Typically, it calculates it back and forth so new customers can see which option offers the greatest tax relief.
Of course, some taxpayers may obtain greater tax relief using the regular method. “While it’s heavier, it’s a lot more beneficial because the simplified option is capped at $1,500,” Sprong said.
But when using the regular method, it’s important to have documentation to prove your deductions. “If you’re drawn for an audit, that’s an area of interest for the IRS,” he warned.
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