LUTZ BUSINESS INSIGHTS
Work From Home? The Top 6 Deductions That You’re Missing
JENNA GRENIER, TAX & CONSULTING DIRECTOR
Working from home has many wonderful advantages. Most days, you can work in your pajamas if you wish. Some at-home jobs mean that you can set your own hours, and all mean that you are free from the morning commute. No freeway accident or howling blizzard can keep you from getting your job done. At-home workers also have some tax advantages that they often don’t claim. If you work from home, make certain that you are getting every possible deduction this year.
The IRS will allow you to deduct the expense of a home office, although they are strict about the regulations governing this deduction. Your home office must be used regularly and exclusively for your work. Perhaps the easiest way to meet these regulations is to designate a separate room for this purpose. You can also use a corner of a larger room, but you should divide it from the rest of the space.
You can determine your deduction in several ways. You can actually measure the square feet of your office and figure its percentage of your home’s square footage. Then, this percentage is used to calculate the amount of your home expenses, such as utilities and property insurance, which are deductible business expenses. Or, there is a simplified method that can be used as an alternative to this calculation. In most situations, this method allows you to determine your home office deduction by multiplying $5 by the square feet of your home office. Under this method, the deduction is limited to a maximum of $1500 or 300 square feet. You should consult your tax advisor to determine the best method to use for your unique situation.
If you work from home but have to occasionally travel to work sites or take business-related trips, you can deduct the mileage or actual expenses as long as you have carefully documented where you went and how far you traveled. You can also document trips to the bank and post office that are for business purposes. Be certain to keep track of toll charges and parking expenses as well since they can also be deducted. None of your mileage is deductible if you fail to document it, however. The IRS will not accept estimates.
Internet and Separate Phone Line
Most people who work from home depend on their internet connection. You can deduct your internet expenses on your taxes if you use your connection for work purposes. Of course, you may not deduct your surfing and social media time, unless it applies to your business. The IRS says that you must determine the amount of time you use your internet for work reasons. If 50% of the usage is for work, you can deduct 50% of the yearly cost.
You can also deduct phone expenses. You can deduct all of the expense of a phone used only for business purposes. If you only have one cell phone, you can deduct the percentage that you use it for business purposes. You are also allowed to deduct or depreciate the cost of your cellphone even if you also use your phone for personal as well as business reasons.
Office Furniture and Equipment
Office furniture that is purchased and used for your work is deductible, including printers, computers, and other necessary equipment. In fact, since 2016, any business asset that costs $2500 or less can be deducted as an expense on your federal income tax return. Anything more expensive is considered a depreciable asset and can be deducted on a schedule. You should consult your tax expert for help in determining the proper depreciation amount.
Business Interest and Insurance Expenses
The IRS lists a number of items that you can deduct when you work from home or have your own business. Business interest on loans used for your work are deductible as are insurance expenses that are for your business, trade or profession.
You can also deduct the cost of subscribing to trade journals, magazines, newspapers, etc. if those publications offer you information and advice that pertains to your particular job or business. As long as you can make a reasonable connection from these subscriptions to your business needs, the IRS will not object.
If you work at home, you may be overlooking some common tax deductions that can greatly reduce your bill this year. If you keep good records and follow the IRS guidelines, you have nothing to fear from taking advantage of these deductions.
ABOUT THE AUTHOR
JENNA GRENIER + TAX & CONSULTING DIRECTOR
Jenna Grenier is a Tax & Consulting Director at Lutz with over ten years of experience in public accounting. She focuses on providing tax and consulting services to privately-held companies and their owners.
AREAS OF FOCUS
- Individual & Business Tax Planning, Preparation, and Consulting
- Small Business Accounting
- Agriculture Industry
- Community Bank Taxation
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Upstream Academy’s Emerging Leaders Academy, Graduate
- Hall County Leadership Tomorrow Program, Graduate
- Certified Public Accountant
- BSBA in Accounting, University of Nebraska, Kearney, NE
- MBA with Accounting Emphasis, University of Nebraska, Kearney, NE
- Grand Island Public Schools Foundation, Board Member
- Grand Island Girl Scouts Community Advisory Board, Member
- Girls Scouts Spirit of Nebraska Finance Committee, Member
- Messiah Lutheran Church, Member
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