Home office deduction on 2020 federal income tax returns?
The following article provides a general overview of the home office deduction for federal tax purposes. This article is not intended to provide legal or tax advice, and you should not rely on this information for your own specific tax-preparation purposes. For a full discussion of the tax deductions that may be available for a home office, please refer to IRS Publication 587, Business Use of Your Home. You should speak to your own tax advisor with questions concerning the complete requirements for the home office expense deduction and your individual tax situation.
An unprecedented number of workers have transitioned to remote work in the last year. If you’re one of them, you may be wondering if you can deduct some of your home office expenses. In other words, are you eligible for a deduction of home office expenses incurred in 2020? Unfortunately, an individual taxpayer must meet several requirements in order to be eligible to deduct home office expenses on their federal tax return, and the deduction will generally not be available for many people.
Here is a general overview about who may qualify for a home office deduction.
Who qualifies for a home office deduction?
The home office deduction for 2020 is only available to self-employed individuals. If you’re an employee, you generally will not qualify for the home office deduction even if you work primarily from home.
As long as you are an employee working remotely, you are not eligible to claim the home office deduction even if you also use your home office for one or more side gigs.
Home office deduction requirements
To claim this deduction, you must meet two basic requirements:
- The space you claim as a home office can’t be used for anything else — you have to use it regularly and exclusively to conduct your business.
- You must show that the space you claim for your home office is the principal place where you conduct your business.
The IRS notes that in general deductions for a home office are based on the relative percentage of the home devoted to business use. Use of a whole room or part of a room for conducting your business will require you to figure out the percentage of your home that has been devoted to your business activities.
However, if your home office also serves another function (e.g., as an area for your kids to do their homework or a guest room), it generally will not qualify for the home office deduction because the space is not used regularly or exclusively for your business. There may be exceptions to this rule for licensed daycare services and for inventory storage, and you should discuss such possible exceptions with your tax advisor.
If you meet the qualifications, the IRS will allow you to deduct certain regular business expenses as defined by the IRS. See IRS Publication 587, Business Use of Your Home for more details. These examples may not apply in every situation, and the taxpayer is responsible for determining the pro-rated portion of these expenses based on the size of the office space in their home being used for their business.
If, after discussing with your tax advisor, you do end up claiming the deduction, your tax advisor will likely recommend that you always keep detailed records and receipts for your business expenses. You’ll want to be prepared to back up your claims in the event of an IRS audit or other inquiry.
Discussing your personal tax situation with your tax advisor to better understand which federal tax deductions you may qualify for can help you take advantage of opportunities to reduce your tax burden — and maximize the amount of money you can put toward savings.
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