Thanks to the Covid Pandemic, more people than ever are working from home, and many will be filing their first tax return since they’ve made the transition. If you worked from home in 2020, you may be wondering if your home office is tax deductible. Well there’s good new and bad news.
The bad news is, if you’re working from home for an Employer (i.e. you are an Employee), you normally can’t deduct your home office.
The good news is, if you are self-employed or a 1099 Contractor, you can. The two basic requirements are:
(1) Your home office is only used for business purposes. It can double as the family media center, home gym or living room.
(2) Your home off is your primary place of business. The IRS has clarified that you can meet clients and conduct meetings are separate office locations, but your home office can be the only location where your administrative work is completed.
What if your home office doesn’t currently qualify for the tax deduction?
The easiest way to deduct your home office expenses is by switching from being an “employee” to being an “Independent Contractor.” With a number of firm cutting pay and hours due to the pandemic, it may be worth exploring. However, you should have a talk with your CPA because you need to consider that you’d need to get a health plan plus pay self-employment taxes in many cases.
Or, you can keep your day job and start a side business. You can deduct all business-related expenses on your tax return, including your home office expenses. Just ensure that your side business home office is in a different location than your employee work space, if you have any at home.
Consider your entire household. Even if you can’t qualify for the home office deduction, maybe someone else living in your home does qualify. See if a family member can take advantage of the home office deduction.
I talked to somebody the other day who has been forced to work from home and cannot wait to get back to the office. The research and statistics show that she was in the vast minority. The Prudential’s massive “Pulse of the American Worker” survey found that over 87% of workers would like to work from home some amount. And if you have your own business, this article shows that working from home will give you more than happiness, it will give you a significant tax break. Speaking of tax breaks, don’t forget California’s Proposition 19, which gives tax breaks to many homeowners who move within the state. If you are planning on working from home permanently, now is a great time to consider moving to a less pricey area so you can live in a larger home, one that includes space for a home office!
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