youAn unprecedented number of employees and businesses have adopted the “home office” model in 2021 and 2022. You should be aware of these significant tax ramifications if you work from home.
You might be wondering if working from home will result in tax breaks now that so many of us are working remotely.
Should you be worried about starting an audit if your small business qualifies you for a home office tax deduction? How does a company initially meet the requirements?
Unfortunately, you cannot claim the home office tax deduction if you are a remote worker who is neither an employer nor a business.
Employees could deduct unreimbursed employee business expenses, which included the home office deduction, before the Tax Cuts and Jobs Act (TCJA) tax reform passed in 2017.
The itemized deduction for employee business expenses has been eliminated for the 2018 to 2025 tax years.
You may have heard that taking the home office deduction increases your chances of being audited by the IRS and raises a red flag for them.
While this advice may have had some validity in the past, changes to the tax code in the late 1990s made it easier for people who work from home to qualify for these write-offs. So please take it if you are eligible.
Am I entitled to the tax deduction for registered office?
In general, you must meet one of the following conditions to be eligible for the home office deduction:
- Exclusive and frequent use: You must frequently use part of your house, apartment, condo, mobile home, boat or other comparable structure for your business. A detached studio, barn, greenhouse, or garage are examples of structures that fall into this category. It excludes any area of a taxpayer’s property that is used solely as a hotel, motel, inn or other similar business.
- Main place of business: Either your home office serves as the main location for your business or it serves as a place for regular meetings with clients or customers. Child care centers and storage facilities are two examples of exceptions to this rule.
The requirement that you use part of your home exclusively and frequently for your business is the biggest obstacle to qualifying for these deductions.
The IRS takes the requirement of exclusive use seriously, and the law is clear on this point. Let’s say you dedicate a room in your house to your full-time business, working there ten hours a day, seven days a week. You violate the exclusive use requirement and lose the ability to deduct your home office expenses if you allow your children to do their homework at the office.