Work From Home? See If You Qualify for Any Tax Credits

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Remote work and the gig economy have become more prevalent since the pandemic, and it’s a trend that is here to stay. According to LinkedIn’s The Work Shift blog, 10% of U.S. job postings on LinkedIn in December were for remote jobs — and those postings received 46% of all applications. This translates into remote roles receiving five times the share of applications compared to jobs available.

And with tax season upon us, if you’re one of those remote workers, make sure you take advantage of certain specific credits (provided you’re actually eligible).

Self-Employed Taxpayers Could Qualify For a Home Office Deduction

First off, the home office deduction is available to self-employed taxpayers, independent contractors and those working in the gig economy, according to the Internal Revenue Service (IRS). So, if you’re an employee who receives a W-2 and you work from home, you won’t be eligible.

Then, to qualify, you must use part of your home — which can include a house, apartment, condominium, mobile home, boat and / or structures on the property such as an unattached garage, studio, barn or greenhouse — “exclusively and regularly as a principal place of business for a trade or business,” according to the IRS.

According to TurboTax, this represents the biggest roadblock to qualifying for these deductions.

“The law is clear and the IRS is serious about the exclusive-use requirement,” according to TurboTax. “Say you set aside a room in your home for a full-time business and you work in it 10 hours a day, seven days a week. If you let your children use the office to do their homework, you violate the exclusive-use requirement and forfeit the chance for home office deductions.”

How To Calculate the Home Office Tax Deduction

There are two ways to calculate the tax deduction. You can either base it on the percentage of your home used for the business, or use a simplified square footage calculation.

“The most exact way to calculate the business percentage of your house is to measure the square footage devoted to your home office as a percentage of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5%,” according to TurboTax.

Or you can use the simplified option, which has a rate of $5 a square foot for business use of the home, with a cap of 300 square feet. The maximum deduction under this method is $1,500, according to the IRS.

“The simplified method can make it easier for you to claim the deduction but might not provide you with the biggest deduction,” according to TurboTax.

Other Tax Deductions To Consider

According to Keeper, business expenses related to your cell phone bill, internet bill, and other internet-related fees could be engaged provided a portion of these expenses are dedicated to exclusive business use.

As an example: “For example, pretend you use your internet for client communications 40% of the time, and for Netflix, TikTok, and online shopping the other 60% of the time. You can only write off 40% of your internet bill,” Keeper detailed. Again, these provisions do not apply to W-2 employees — and further research into restrictions and details pertinent to your individual tax case should be considered.

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