Happy Tax Day! It’s now July 15th, the 2020 Tax Day in the U.S.

With the increase of coronavirus-related layoffs and growing unemployment, many people are pivoting to entrepreneurship, freelancing, or working remotely to stay afloat financially. The pandemic led to Tax Day being pushed back on a federal level from April 15th to now. How accurate your accounting is throughout the year determines how stressful tax season is. The extra time has allowed taxpayers to not only recover but prepare.

For Tax Day, I prepared this short guide to the Home Office Tax Deduction specifically for new remote workers. If you are considering taking the deduction next year, there is certain qualification criteria to keep in mind.

What is the Home Office Deduction?
The Home Office Deduction is a tax deduction available for homeowners or renters who use a part of their homes for conducting business. Whether it is meeting with clients one on one, working online behind a laptop, or packaging items you sell, you may qualify for this deduction if you’re conducting business primarily from home.

Work From Home Employees May Not Qualify
At the time of this post, it is estimated that up to 30% of the workforce will be working from home until the end of 2021. Even with the number of remote workers in the U.S. rising, recognize that working from home for an employer may not qualify you for the Home Office Deduction according to IRS Guidelines. In the past, those who worked remotely were able to deduct un-reimbursed home related business expenses under Schedule A miscellaneous itemized deductions. The 2018 Tax Cuts and Jobs Act has since eliminated that option.

As a W2 reporting employee, you may be able to take the deduction if you work from home as a convenience to your employer. An employee’s home office is deemed an employer’s convenience only if:

• It is a condition for maintaining employment
• It is needed to allow an employee properly perform her/his duties
• Necessary for the employer’s business to function properly

WFH employees may also qualify if their primary job function is to perform administrative work or management activities, and if there is no other location for them to perform those job duties. Activities that fall under this description include functions such as book or record-keeping, billing and payments, report writing, and/or appointment scheduling. To learn more about what administrative work qualifies for the deduction, see IRS Publication 587 on Business Use of Your Home.

The Deduction Is Not About Who, but Where
Even if you are not self-employed full-time, you may still qualify for the Home Office Deduction. Remember, the deduction is based on the location of where you regularly and exclusively do business (your home), not on how many self-employed hours you put in.

Exclusive use means that the portion of your home you use for business is exclusively dedicated to that. For example, if you work primarily in your living room, but also use the living room for rest and leisure, then that room wouldn’t qualify. Some exceptions to this may include if you use your living room for packaging and storing inventory you sell, or if you run a home daycare facility. Read how the IRS defines exclusive use here.

Know Which Deduction Option To Take
The home office deduction is suitable for the self-employed who claim a percentage of their home is devoted to their business. There are two options for calculating this deduction: the simplified and standard option.

Simplified Option: with this option, you take $5 per square foot of the portion of your home you use for business. It is truly the simplest option.

Actual Method: with this option, the deduction is calculated by taking the total amount of expenses of operating your business in your home and multiplying it by the percentage of your home used for your business. For example, if a quarter of your home or apartment is used primarily for your business, you could deduct up to 25% of your total home expenses with this option.

Home expenses may include your mortgage or rent, costs of utilities, and homeowner/renter’s insurance. However, the IRS is very meticulous about what can be written off as either a direct or indirect business expense. It’s always best to keep accurate records of expenses for business separate than for personal use throughout the fiscal year.

If you are unsure of which option to use, see instructions outlined by the IRS and consult with a qualified tax professional.

Note: I am not a qualified tax professional and do not represent the IRS. To find a tax pro, see the U.S. directory of credentialed tax preparers in your state.