If I work from home, do I qualify for a home office tax deduction?
Unprecedented numbers of employees and companies adopted the “home office” model in 2021 and 2022. You should be aware of these significant tax ramifications if you work from home.
You might be wondering if working from home will result in any tax breaks now that so many are working remotely.
Should you be concerned about starting an audit if your small business qualifies you for a home office tax deduction? How does a company initially meet the requirements?
Unfortunately, you cannot claim the home office tax deduction if you are a remote worker who is not an employer or a business.
Employees could deduct unreimbursed employee business expenses, which included the home office deduction, prior to the Tax Cuts and Jobs Act (TCJA) tax reform that was passed in 2017.
The itemized deduction for employee business expenses has been abolished for tax years 2018 through 2025.
You may have heard that taking the home office deduction increases your chances of being audited by the IRS and raises a red flag to them.
Although this advice may have had some validity in the past, modifications to the tax code in the late 1990s made it simpler for individuals who work from home to be eligible for these write-offs. So please take it if you are eligible.
Do I qualify for the home office tax deduction?
In general, you must fulfill one of the following requirements to be eligible for the home office deduction:
- Exclusive and frequent use: You must frequently use a portion of your home, apartment, condo, mobile home, boat, or other comparable structure for your business. A detached studio, barn, greenhouse, or garage are examples of structures that fall under this category. It excludes any area of a taxpayer’s property that is used solely as a hotel, motel, inn, or other similar enterprise.
- Principal place of business: Either your home office serves as your company’s main location or it serves as a venue for regular client or customer meetings. Daycare centers and storage facilities are two examples of exceptions to this rule.
The requirement that you use a portion of your home exclusively and frequently for your business is the biggest barrier to eligibility for these deductions.
The IRS takes the requirement for exclusive use seriously, and the law is clear on this point. Let’s imagine that you dedicate a room in your house to your full-time business, working there ten hours a day, seven days a week. You violate the exclusive-use requirement and lose the opportunity to deduct your home office expenses if you allow your kids to do their homework in the office.