Working from home has a great benefit. A lot of people have adopted the work from home culture to enjoy the flexibility it gives, especially during the tax season. You can claim home office deduction on your 2024 tax return if you have a section of your house that serves entirely for business purposes. The deduction reduces your taxable income, enabling you to save more bucks from the IRS.
What is the home office deduction for 2024
Home office deduction is a tax deduction given to self-employed persons or small business owners that enables them to deduct expenses incurred for working from home. These may include expenses such as utilities, rents, mortgage interests and maintenance for the space exclusively for work.
The IRS offers two methods of calculation:
- Simplified: You can deduct $5 per square foot of space up to a maximum of 300 square feet, that is, a deduction of $1,500.
- Regular: Actual expenses must be calculated for purposes of the allocable part, for example, percentage used for business of total square footage of home.
Who qualifies for the home office deduction
Not everyone who works from home is able to claim this deduction. Here are the major criteria for eligibility:
- Exclusive use: The area you claim must be used only for business. If you use the space for personal reasons, you cannot take the deduction.
- Regular use: The space must be used regularly for work-related activities. Occasional use does not qualify.
- Primary business location: Your home must be your principal place of business or a space where you meet with clients or customers.
An employee, working from home for his own convenience or by his own choice, cannot claim the home office deduction. Only self-employed, freelance, or independent contractors can claim it.
What expenses can you include in the deduction
If you use the regular method to calculate your home office deduction, you can include various expenses. These fall into two categories:
- Direct expenses: Costs that apply specifically to your home office, such as painting or repairs. These can be fully deducted.
- Indirect expenses: Costs for maintaining your entire home, like utilities, property taxes, and homeowners insurance. You can deduct a percentage of these based on the size of your office relative to your home.
Limits on the home office deduction
Working from home is a great way to save money but here are the limits:
- Income limitation: You cannot deduct more than your business’s net income. Any excess can be carried forward to future tax years.
- Shared spaces: If you share your workspace with others or use it for personal reasons, you cannot claim it. The IRS is strict about the “exclusive use” requirement.
How to claim the home office deduction
These are the steps to follow to file for your home office deductions:
- Choose Your Method: You may want to consider the simplified method or the regular method.
- Use the correct form: If you are self-employed, file Form 8829 (Expenses for Business Use of Your Home) with Schedule C (Profit or Loss from Business). If it is a partnership, the deduction would go through that partnership tax return.
- Keep Records: Receipts, utility bills, and other documents to substantiate your claim should all be kept. Measure and maintain the square footage of your home office and square footage of your total home area.
How to maximize your tax savings
You can maximize your tax deductions even if you are working from home. Here are a few tips on how to do it:.
- Keep your records: Save all your receipts and documents throughout the year.
- Do an annual analysis of your expenses: Some years will save you far more time using simplified methods, while other years will give you higher deduction amounts with the regular one.
- Ask a tax specialist: Get a professional’s opinion if you are not sure you are calculating or claiming the deduction accurately to make sure you are following the IRS rules.
Related Post:
$1,700 refundable Child Tax Credit 2025 – when is the payment date?
