Simplified Home Office Deduction in 2023

simplified home office deduction for corporations

As remote work continues to be a popular option, many employees realize that the convenience of working from home may come at a cost, especially regarding taxes. Unlike in-office employees, those working from home are responsible for covering their home office expenses.

This is due to the 2017 Tax Cuts and Jobs Act, which eliminated unreimbursed itemized employee deductions. Simply put, tax deductions for remote works or a home office tax write-off. Despite the rise in remote work since the pandemic’s start, Congress has not brought back these deductions. As a result, employees working from home may miss out on potential tax savings.

With the onset of the Covid-19 pandemic, USA Today cited a study from the Pew Research center that 61% of employees had the means to work from home and preferred to do so. With the new trend, it has become understandably confusing on the nuances of who qualifies for work from home tax deduction considering the many types of people working from home.

To help you navigate through the in’s and outs of home office deduction, we’ve outlined below how it works and if you’re able to take the home office deduction. In reference to the requirements set by the IRS, read on to see if you meet their criteria for home office deduction.

Who Can Claim Home Office Deduction

Work from home employees who qualify for home office deductions generally have to meet the following criteria:

You’re a taxpayer with a dedicated and separate space in your home used exclusively for work.
Your dedicated home-office space is used for work purposes only and is your primary space for business.
You’re self-employed or an employee who works from home.

Generally, if your home office is your primary place of business and isn’t used for personal reasons, you may be eligible for home office deductions covering things like utilities, mortgage interest, property taxes, and homeowner’s insurance.

How To Deduct Your Home Office Space

If you work from home, you may be eligible to claim deductions for your home office space on your tax return. There are two ways to do this: the simplified method or the direct method.

The simplified method allows you to deduct $5 per square foot for your home office space, up to a maximum of 300 square feet or $1,500 per year. If you only use your home office space for part of the year, you’ll need to prorate the deduction amount. This method is straightforward and requires less record-keeping, making it a good choice for those with smaller home office spaces.

The direct method requires you to track all of your home office expenses, including exclusive office supplies (laptops, printers) and those related to repairs and maintenance. You can deduct a portion of other expenses such as rent or property taxes, home depreciation, and utilities based on the proportion of the space to the rest of your house.

For example, if your home office is 200 square feet and your home is 2,000 square feet, you could claim 10% of your allowable expenses (200/2000 = 0.10). Keep in mind that you’ll need to keep detailed records of all expenses to support your deduction and ensure compliance with tax laws.

It’s important to note that there is no limit on the amount you can deduct for your home office space. If you have eligible home-related expenses totaling $10,000, for example, you could claim up to $2,500 in deductions. However, it’s crucial to ensure that you’re only claiming expenses that are directly related to your home office and that you have the necessary documentation to support your claims.

Ultimately, the method you choose will depend on your individual circumstances and the amount of effort you’re willing to put into record-keeping. Consulting with a licensed tax professional can help you determine the best approach for your situation and ensure that you’re maximizing your deductions while staying in compliance with the law.

Does Home Office Deduction Reduce Gross Income

For those who qualify for home office deduction, know that it will reduce your gross income. Due to the expenses tied to your home office, such as utilities and a percentage of mortgage interest and rent, you reduce the total amount of taxable income you have. This, in turn reduces your overall tax liability.

With that said, the amount deducted can’t be more than your actual gross income generated from your work. You can’t use home office deduction to create a loss for tax purposes.

Along with that, there are nuances and rules that make you viable for home office deduction. You’re best off consulting or working with a licensed tax professional to go through the specifics of your set up. Doing so will give you a clearer picture of how claiming a home office deduction will affect your gross income and tax liability.

In conclusion, working from home has become common in the wake of the COVID-19 pandemic. This ‘new normal’ set up has brought attention to the tax implications of remote work. In response to home workers having to shoulder their own work-related expenses unlike office employees, the IRS outlined criteria for home office deduction for taxpayers who work from home.

As long as you have a separated and exclusive space in your home for work, you’d do well to look into if you qualify for home office deduction. Work with a licensed tax professional to iron out the details so that you can legally use this valuable tax-saving tool to your best advantage.