March 3, 2023
Tax season has arrived, and if you work from home, you may be wondering what you can and can’t write off.
Tax deductions are expenses the government lets you subtract from your income, lowering the amount of your income that gets taxed. They can save you thousands of dollars, so it’s important to claim every deduction you qualify for.
Deductions for people working from home have changed a lot in the last few years. Here’s how.
Can I Claim My Home Office on My Taxes?
In most cases, you can only claim a tax deduction for your home office if:
- You are self-employed
- Your home office is only used for your self-employment
If you work remotely but receive a W-2 from an employer, then you don’t qualify for the tax break. Similarly, if you use your home office to work remotely for someone else, but also use your home office for self-employment, you cannot claim the deduction.
You may be thinking, “Didn’t I get a home-office deduction in the past?” Yes, you may have. But the Tax Cuts and Jobs Act of 2017 changed who qualifies for this deduction from 2018 through 2025. Even if you qualified for a home office deduction before, you may not qualify now.
Who Usually Qualifies for Home Office Tax Deductions?
Freelancers, independent contractors, and gig workers usually qualify. Employees working for someone other than themselves usually do not qualify.
How Do I Know if My Home Office Qualifies for a Tax Deduction?
The tax code states that a home office must be on the taxpayer’s property. That means your home office could be a room in your house, or it could be a separate structure that’s on the same property as your house. Other structures count, too, such as apartments, boats, and mobile homes.
Regardless of where your home office is, it must be the main place that you do your job. If you use your home office to make or store inventory, conduct calls, meet clients, operate a computer, or do other essential functions of your business, it may qualify for the tax deduction.
How Do I Claim a Home Office Tax Deduction?
There are two ways to claim a home office tax deduction: the simplified version and the standard version. Some taxpayers find they get a bigger deduction using one method over the other, but which version is right for you will depend on your situation.
Regardless of which version you choose, you’ll need to prove that your home office is essential for your business. You can also only claim the deduction for months you used the office. If, for instance, you worked for yourself only eight months last year then you can only claim the deduction for those months.
Method 1: Simplified Tax Deduction
The simplified version of the home office tax deduction allows you to take off $5 per square foot of your home office up to 300 square feet. That means the maximum possible deduction is $1,500.
Method 2: Standard Tax Deduction
With the standard tax deduction, you can write off up to 100% of qualifying expenses. These include supplies like computers, printers and other equipment, as well as a percentage of your utilities and rent or mortgage payments. You can use Form 8829 to determine whether certain expenses qualify.
Note: Using the standard tax deduction can impact you later if you sell your home. If you sell at a profit, you could pay up to 25% rate in capital gains because of the depreciation allowed when you claimed your tax deduction.
Can I Deduct Other Costs of Working From Home?
Working from home can be convenient but costly. You probably had to shell out for a computer, office furniture, monthly internet costs, and so on. Can you get a tax deduction for those things?
Probably not. Unfortunately, the tax act passed in 2017 axed those deductions for most employees. If you aren’t entitled to a deduction for your expenses, your best bet is to ask your employer to give you a non-taxable reimbursement for those costs.
Exceptions for Some Home-Based Workers
The IRS outlines four categories of employees who can claim at least some deductions for job-related costs of working at home, including:
- U.S. military actives
- Qualifying performing artists
- State and local government officials compensated on a fee basis
- People with physical or mental disabilities that limit their ability to work
There’s also an exception for teachers that allows them to deduct up to $300 for classroom supplies.
Common Work-From-Home Tax Questions
Working from home can make tax time trickier. You should know…
Will My State Taxes Be Different?
As a remote worker, you still pay tax on your income. The income from your job will be reported to you on a W-2 in January, and you’ll report that income on your tax return. Nothing there has changed, at least for the federal tax return. But you may have special tax issues to deal with when you file your state income tax return, unless you live and work in a state that has no income tax. These states include:
- South Dakota
What’s Different About State Returns for Remote Employment?
If you live in the same state in which your employer is located, state taxes are pretty straightforward. But when the pandemic hit, commuting to the office became a thing of the past for many. Some people left urban areas and moved to less-populated areas of the country where the cost of living was less expensive. If you crossed state lines to do that and now live in a different state from your former office, you may be dealing with the income tax rules of two states, not just one.
Do I Owe Taxes to Both States If I Live in One and Work in Another?
Good question — it depends. Most states look to your physical presence in determining whether to tax you.
For example, if you live in one state and work for an employer in another state, you will only owe tax to the state in which you live and work.
But each state is different, so be sure to use tax preparation software such as TurboTax® that considers the facts and circumstances of your employment situation in light of the tax laws of the states involved.
When It's Time to File Your Taxes, TurboTax® Can Help
From simple to complex taxes, TurboTax has you covered. And when you need help, real experts are standing by and can even do your taxes for you, start to finish with TurboTax Live®. Getting your biggest possible tax refund has never been easier. And if you're a PenFed member, you can save up to $20 when you file with TurboTax.
The information in this article is for general educational purposes only and not intended to provide specific advice or recommendations. Please discuss your particular circumstances with an appropriate professional before taking action.