Working from home and its tax benefits
Working from home can be a great way to save money on childcare and other expenses such as clothing and transportation. But did you know that you can save by deducting your home office expenses?
The number of people working from home has increased in recent years. However, people are still unsure about the tax implications of this choice.
Our guide will help you understand the tax breaks of working from home, as well as provide a list of legitimate work-from-home opportunities to gain business income for anyone starting their business.
Who can benefit from the Home Office Deduction?
The home office deduction is available to anyone who works from their house, condo, or townhouse and creates a dedicated office exclusively for business activities. These are non-employee workers who are independent contractors, self-employed freelancers, or gig-workers.
The home office tax deduction was put in place to relieve financial burdens to entrepreneurs who built a workspace at home. This tax break is mostly effective when reducing taxable income. It can be the difference between paying taxes on a balance by the end of the year or claiming a federal tax refund.
Who does not qualify for the home-office deduction?
Employees earning W2 wages do not qualify. During the pandemic, many companies transitioned from in-office positions to working remotely. Due to the transition, employees worked from home and created workstations in their houses.
Many businesses used that time to reimburse employees for home office expenses and received their businesses tax deductions. However, there were other business owners who didn’t. The unreimbursed employee expenses that a remote worker accumulate does not qualify for tax deductions. This is because the employee is not self employed and the costs incurred were not business expenses.
In other words, although you may have incurred expenses from these working activities, it’s not considered deductible business expenses.Therefore, they are not deductible for the home office tax deduction.
Also, people who use shared spaces that are not regularly and exclusively for business activities do not qualify.
For example, if you set up your laptop on the kitchen table and work from your kitchen during the day and eat family dinner on the same table in the evening, that space does not qualify for the home office deduction.
What expenses can I deduct for working from home?
Many deductions can help reduce taxable income, resulting in a lower or zero dollar tax bill.
Here is a list you can claim below:
- You can deduct a percentage of your home expenses like rent, mortgage interest, and property taxes
- You may deduct part of your household expenses like utilities and repairs
- Expenses such as business supplies, computers, office furniture, and WIFI bills.
- You may also be able to take a depreciation deduction on the value of your home office furniture and equipment.
Can I write off the internet if I work from home?
Having a home-based business may allow you to write off the internet as a business expense. According to the IRS, business expenses must be ordinary and necessary to the nature of your industry. However, you must keep track of what is related to the business portion of the bill. Personal use of the internet bill does not qualify.
Let’s get into an example below:
Say you use 10 percent of the internet for business operations and 90 percent for activities other than conducting business. Only 10% of that bill is tax deductible.
A rule of thumb is always keep logs of your business activities and expenses. Keeping an expense report is a great way to track how much you’re spending and your business expenses usage. Click here to download a free expense report for your company.
Can I write off the electric bill if I work from home?
Yes, your electricity bill is deductible for the amount you use related to your company’s establishment. Like any home office write-off, you can calculate how much expense you incurred due to operations. Once you calculate the amount for business use, you include the net cost on your Schedule C or on any other business return.
Do not write off more than you incurred. If you deduct more than the actual business expense and the IRS finds out, the expenses you claimed on your tax return will be reclassified during an IRS audit. Once the IRS reclassifies your transactions, you will owe interest and penalties on the total cost.
Can I deduct home office expenses if I work from home?
Home office expenses are 100% deductible. These are expenses such as computers, desks, software, monthly subscriptions, home office supplies, etc. Be sure to keep tabs on every purchase or cost incurred, no matter how big or small. This way, you can claim the exact relevant expenses on your income tax return by the end of the tax year.
How do you calculate the home office deduction?
There are two options available to claim the home office deduction: the simplified option and the regular method. The simplified option can be done entirely on your tax return without professional advice, and the standard or “regular” method requires detailed documentation but provides greater accuracy than its counterpart.
Simplified Method for Home Office Deduction
The simplified method is an easy and quick way to determine your home office deduction. To calculate the simplified deduction, you must multiply the total square foot for the business use of your home by $5. The maximum amount you can claim with the simplified method is 300 square feet., totaling $1500. This is 300 square feet X $5, which equals $1500.
Suppose you use 250 square feet of your home for the sole purpose of your home enterprise and want to use the simplified method for the home office deduction. The calculation will look like this: 250 sqft X $5= $1,250. You can then deduct the full $1,250 on your 1040, Schedule C.
Home Office Deduction Regular Method
The standard method allows you to claim a tax deduction based on the percentage of your home office square foot and qualified expenses. With this method, self employed people can report rent or mortgage interest, repairs, utilities, property taxes, and other eligible expenses.
To calculate the regular method, divide your home office square footage by the total space of the house. You’ll then multiply the total allowable expenses by that percentage.
To visualize the calculation, say your home office uses 250 square footage, and the total sqft of your home is 1000. That would be (250/1000 = .25). This means you can deduct 25% of your expenses.
You’ll then want to multiply the total cost of maintaining your home and also used by the business by 25%. So say, your total dues are $10,000. That would be 10,000 X .25 = $2,500. Meaning you can deduct the full $2,500 on form 8829. The numbers on form 8829 will then flow to line 30 on Schedule C of your 1040 return.
The standard method may be better for some business owners because there isn’t a limit to how much you can deduct. This is usually true for people who pay high costs in rent/mortgage, electricity, gas, interest payments, and more.
What are the benefits of working from home?
Working from home has many benefits and can provide tax breaks. It’s excellent for people looking to spend more time with their family, work fewer hours per week so they can maintain an active lifestyle outside of the office, or increase productivity.
Saving money is another benefit as it takes away the necessity of commuting every day. You don’t have to worry about getting stuck in traffic on your way back home or staying late in the office. Additionally, parents can pick their children up from school.
Working from home gives a sense of freedom and independence, which provides more regular hours. You’ll have less competition on job sites or in your office. Lastly, no need to worry about in-office interruptions created by workplace distractions as you’ll be in your own space at home.
Working from home ideas
Although some people feel secure with a 9 to 5, most are looking to start working from home and benefit from the home office deduction.
Everyone wants that sense of freedom with more time and money.
Here are some great opportunities for making extra income without having to leave your house. Whether you’re looking for part-time jobs or full-time gigs, this list has something for everyone!
If none of these sounds like they fit what you’re looking for, feel free to use them as inspiration when creating your business idea. The possibilities are endless!
Below are suggestions for turning your spare room into an office space where YOU control YOUR schedule AND keep ALL the profits!! And not to mention, deduct those expenses associated with your business during tax time by sharing the cost of maintaining your home with your business.
First up, Cryptocurrency
With the ever-changing world of technology, many people benefit from day trading. Once you know how to trade the correct way, the possibilities are endless. Cryptocurrency is becoming a new norm with new tax implications every minute. But like any home-based business, this type of business qualifies for the home tax deductions and has several tax benefits of its own.
Consider taking a course on Cryptocurrency to help learn the ins and outs to maximize profits.
There’s a great course through Crypto Swap for individuals interested in learning Cryptocurrency from A to Z.
In Crypto Swap, you’ll learn the basics of Cryptocurrency. After taking the course, you’ll understand the meaning of DeFi.
Crypto swap introduces you to all the new DApps and tools you need in trading. You’ll have the option to work from a mobile device, so you can conveniently make money wherever you go.
Learn Smart Risk High Reward Rules-Based Trading, which takes away the inception of taking big risks to get high returns.
Taking the course will also teach you about Altcoins and their explosive growth. Sure, you have heard about DOGE Coin but have you heard about the other 9000 coins exploding in the market. You will learn how to identify the projects behind them.
Click here to sign up and learn the CSP Game Plan that helps minimize risks and increase profits.
Option POP
Option Pop is another option for investors seeking passive income while claiming home office tax deductions. You can set up a home office space with your monitors and watch the stock market trends while getting notifications on which stock is projected for growth.
With Option POP, you’ll get alerts on stocks with potential spikes or dips. Through the app, you’ll have the option to bid on the success or downfall of the stock. If the needle moves in the direction of your bid, you’ll then make a profit.
Check out their website for the advantages and disadvantages available. They provide a detailed outline of the pros and cons of the app on their website.
Bot trading
If taking a course is not for you, try joining a group of like-minded people to learn and bounce ideas from one another. One effective way of learning is to surround yourself with individuals on a specific journey together.
If you’re interested in bot-trading, click here to learn more and get exclusive access to exciting member-driven strategies based on custom indicators, In-Depth Discussions, quality trading education regarding the different types of markets, and MORE.
Bot trading may qualify for the home office deduction if you have a dedicated home office space exclusively for business purposes. This can be done by simply doing admin work by bookkeeping and keeping track of your earnings.
For example, you can have an exclusive area in your home to document earnings, keep track of profits, etc. This workspace can also be used to attend meetings while still gaining income from bot trading.
Forex
Many have heard about the infamous forex trading. But many people don’t know what it consists of or how to earn money with this option. Luckily, there are many courses out there on this topic.
Check out this course to learn how to work from home using forex.
Become a freight broker
If trading is not your thing, you have other alternatives to working from home. A great choice is becoming a freight broker. Freight brokers are the middlemen that help move goods from one place to another. They’re experts in logistics and ensure your package gets where you want it when you need them most!
The freight broker industry has grown by leaps and bounds over recent years. This is mainly due partly because people having access to both online and mobile apps. There’s never been a better time for those looking to start their own business or want an extra income stream.
Visit here to learn to be a freight broker or agent.
Pet grooming business
Love Pets?
The pet care industry is a booming field with many opportunities for those looking to get involved. You can open your store, work at home as an independent contractor or give clients virtual appointments through services.
Designating a pet grooming business area in your home can help with big tax savings at the end of the tax year. If you use the standard method for your home office tax deductions, you’ll be able to deduct rent, electricity, water bill, or any other expense incurred for business use. Any detached spaces from your home may not qualify, such as garages.
Visit here to learn more about pet grooming.
Writing paychecks
There are easy ways to gain extra income. You can write and earn money. Writing content online is an excellent way for people to start their own business or need an income boost in general! Click here to learn more.
Credit repair
Credit repairs are needed more and more as people invest in real estate. This service is highly profitable because specific individuals require fixing their credit to own a business or own a home.
You can learn to do a credit repair business and become an entrepreneur. The world needs more people with good payment history, so you’ll have plenty of potential customers for your services!
Click here to learn more.
Learn trades like Barbering
Through Afro Curls and Cuts, you’ll learn insightful techniques in learning the skills related to cutting hair. This site provides fantastic tips and tricks on the necessities needed to work from home or own a barbershop.
If you provide haircuts from your home, you can deduct the space you receive your clients. Consider deducting the electricity and furniture you use to serve your clients as you utilize clippers or other tools. Remember to use the home deduction that works best for you.
If you want to avoid mistakes or maximize your tax benefit, hire an Accountant or Professional Tax Preparer to compare the simplified and standard deduction.
Working from home part-time
You can work from home part-time and still enjoy the tax benefits of a home-based business. The home office deduction qualifies for part-time business owners, however, do remember to calculate the percentage used for business purposes.
Conclusion
Individuals who use a portion of their home for business purposes may claim a home office deduction. You can claim the deduction whether you own or rent your home.
The time you spend working from home can be a great way for moms who want to maintain their sanity while also meeting family needs. You’ll have more freedom, less stress, and increased productivity!
The more you work from home, the better your benefits. There are two ways to calculate your home office deduction. You can use the simplified method as well as the standard method. The simplified method has a limit of $1,500, whereas the standard method does not have a limit.
Many working-from-home options are available, from dibbing and dabbing in Cryptocurrency to owning a pet grooming company, writing, barbering, and opening a credit repair business. All of these options allow you to take the home-office deduction so long as you follow the qualifications of the tax benefit.
Whether you work from home full-time or part-time, you can take the deduction. To do so, you’ll need to calculate the percentage of business activities and multiply the rate by business expense using the standard method.
Check out other articles below:
How to Choose a Business Entity with Tax Benefits
Accounting Terminology Guide For Every Business Owner
What are the importance of Accounting Software?
What is accounting and how does it work?
Top 5 Benefits of Outsourcing Bookkeeping Services
Choosing The Right Tax Year For Your Business
Understanding Sales Tax and Nexus
Top 9 Ways to Keep an Eye on Cash Flow
Top 4 Tips to become a Bookkeeper without a license
