Many people have been relegated to a work-from-home situation, while others didn’t have a choice. Since the coronavirus pandemic started, many people lost their jobs while some companies had to adapt to the challenge by implementing a work-from-home order for a lot of people.
There is still no vaccine or cure for the coronavirus, so it’s hard to go back to normal. As such, people and companies have to embrace the new normal.
Now, for people working from home, there is a home office deduction that they could avail themselves of. The Internal Revenue Service (IRS) itself made the reminder during the Small Business Week, a regular conference that was virtually done this year from September 22 to 24.
What is the home office deduction? It is a tax relief that can be imposed on the tax returns of people working from home by deducting certain expenses. Unfortunately, this could not be enjoyed by people who are considered regular employees. This tax feature is only for those in the gig economy.
There are two basic requirements for people to enjoy the home office deductions:
What does it mean when it says that part of the house should be used for business? For one, it should be the main area where business deals are made and when work is actually done. It could also be a separate structure from the house as long as it’s a place where the taxpayer does business. The same area, which is used as an office, should also be where documents like inventory and products are stored.
Now, the term home deduction is used. But what constitutes home? It’s a taxpayer’s lair of course, so it could be a house, apartment, condominium and even a mobile home like an RV or even a boat. Everything that is part of the property can be considered a home. For example, for those living in a house, the entire property might have a garage or barn or greenhouse. These are still part of the home.
So, what are the things that could be used as deductions in the tax returns? Taxpayers can deduct certain expenses for that area of the home that is used for business. That includes the following:
A taxpayer may claim the deduction via a regular or simplified method. The regular method allows the taxpayer to divide expenses of the house between personal use and business operations. The simplified method, on the other hand, imposes a rate of $5 per square foot of the area of the home used in business. There is a maximum deduction of $1,500.
There are also cases when part of the home is used for short-term rentals or as a daycare facility. When it comes to operating a daycare facility, the taxpayer may be able to claim a deduction for a space that is used for both the daycare and personal activities. In this case, the home or business should have the appropriate papers to indicate its role as a facility.
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