The Tax Advantage of Working from Home

The latest changes in the world have seen many people move from working in offices to working remotely. This kind of arrangement has a fair share of its advantages. While we won’t delve into all of them right here, let’s talk about the tax advantage of working from home.

 Employees who work from home are eligible to tax deductions not available to office employees. However, to make sure you’re not rejoicing way too early, check to see if you meet the criteria set out by the tax department. Failure to do so can subject you to additional penalties or taxes. Here are some of the expenses you can claim when working from home if you qualify.

Home Office Deduction

Working from home has become a huge convenience for most employers. An employee who lives in a different city than the company’s head office may have an office at home. This cuts down on the company’s expense of renting an office for the employee.

 If such an employee uses the home office exclusively for ongoing business use, they can deduct part of the home-related expenses. This includes property taxes, mortgage interest, homeowners insurance, as well as some utilities.

Save Your Receipts and Expense Records

You must have proof of any employee expense you claim as a deduction. This means that your records must be accurate and updated. The IRS recommends that you have a written record just in case they need any clarifications. Records you keep on your computer will serve this purpose well.

You also need to have proof of payment for any expenses related to tax. The evidence can be in the form of a bank statement, credit card, itemized receipt, or canceled check. For payments made in cash, the receipt must include the name of the payee, the amount paid, and date of payment. 

Track Your Mileage and Travel Expenses

Some travel expenses may qualify for a tax deduction. Using your vehicle to make work-related trips, paying for meals, and accommodation expenses are deductible. However, you’re not allowed to deduct the expenses that your employer reimburses. The only time you can do so is if the employer reimburses just a portion of the business mileage rate. Deduct the excess amount per mile. 

Familiarize with the Limitations on Deductions

There’s a procedure to follow when claiming tax deductions. They must be reported on Form 2016, which is the Employee Business Expense. Attach this form to Form 1040 where your deductibles will be scheduled on the Itemized Deductions list. 

 Failure to itemize your deductions means that you can’t deduct unreimbursed expenses. Employee expenses form part of the miscellaneous deductions, subject to a 2% floor. This means that only amounts greater than 2% of adjusted gross income qualify for a deduction.

Self-Employed Individuals

Self-employed people fall in a different category since they’re not employees. While they’re eligible for tax deductions, their income and expenses are recorded on Schedule C. If their income is more than $400, they must pay self-employment tax besides the income tax.

Take Away

One of the most significant advantages of working from home is that you’re entitled to tax deductions. All the money you use to run the business is deductible, including internet fees, mortgage interest, insurance, bills, meals, and fuel. All you have to do is to keep your records right as proof of the expenses.