By Shawna Stapleton, CPA
This is a question we have gotten many times over the last year, especially with so many of us working from our home office instead of “the office”. You also may be wondering if there are tax breaks or deductions for you. Unfortunately for most of us, there is not a means for this deduction since the passage of the Tax Cuts and Jobs Act (TCJA) of 2017. This tax law removed the deduction of employee business expenses as well as most other 2% itemized deductions, and it was there that previous home office deductions were taken, leaving us no place on our tax return to even deduct it.
There is an exception for the self-employed which also includes partnership self-employment income. Also, if you have an S-corporation you can setup an accountable plan to reimburse for home office expenses, but this reimbursement is done at the entity level.
The IRS has given the following guidelines for a home office to qualify as a deduction should you have the tax situation that allows for the deduction.
Exclusive Use: The area of your designated home office must be used exclusively for business, although it is not a requirement that this be a separate room or an area that has been partitioned off. This separate area must be identifiable to qualify.
Regular Use: This designated area must be used on a regular basis since incidental or occasional use does not qualify. It would be on the burden of the taxpayer to establish the substantiation of the regular use.
Principal Place of Business: Although is not unusual for a business to have several locations, the home office must be the principal location where business is conducted. This includes management and administrative functions, as well as meeting with clients or customers.
Separate Structure: If a home office has been constructed as a building separate from the home it is not required to be the principal place of business to qualify for the deduction.
Calculating the home office deduction can be done on a Form 8829 where a percentage of the qualifying costs are calculated. A simplified deduction is also available for a $5 per square foot deduction. It is best to run the deduction both ways to see what is most advantageous.
While there have been rumors that a home office is an invitation for an IRS audit, as with any deduction, it is important to determine that you qualify and have adequate records to support the deduction. Please let us know if you have specific questions, as we welcome them.
The material provided is for general information and education purposes only and does not constitute investment, legal, or tax advice. Individuals should seek independent tax advice from a tax professional prior to implementing a new strategy.