By Lee Sherman
After the coronavirus (COVID-19) was declared a pandemic, businesses everywhere shut down their offices and employees were told to work from home. While working from home is nothing new for certain occupations (freelance writers, web developers, travel agents, and medical transcriptionists, to name a few) many people are having to set up a home office for the first time.
Sure, you’ll want to design an office that will provide a good background for all those Zoom conferences you’re going to be attending but the biggest consideration is how the change will affect your finances. Working from home (WFH) has specific tax implications. The good news is that many of the items you’ll need to properly set up and equip your home office are indeed tax-deductible (even those from West Elm).
If you use part of your home for business, you may qualify for the home office deduction. Many people get confused about is actually covered but it’s really quite simple if you just follow a few simple guidelines.
Both renters and homeowners can qualify for the home office deduction. If your home office is 300 square feet or less, the IRS gives you a deduction of $5 per square foot of the part of your home that is used for business, up to a maximum of $1,500 for a 300-square-foot space. Your home office doesn’t necessarily need to be a separate room (a studio apartment with a divider in place may qualify) but it does need to be used only for business purposes. There’s no getting away with claiming your bedroom is your workspace just because you work from the bed most days. And mixed-use environments such as working from the guest room where your folks stay when they are visiting is also frowned upon.
Even if you often conduct business outside of your home, you still may qualify for the deduction, if your home is your principal place of business.
Artists, photographers, and musicians know that free-standing structures such as a studio, garage, or barn can also qualify.
Other possible deductions according to the IRS website include mortgage interest, insurance, utilities, repairs, and depreciation. Wi-Fi subscriptions and dues, common office supplies and office equipment such as a printer, scanner tablet, or computer are covered but you’ll most like have to itemize the larger electronic items. Don’t forget your mobile phone. You may be able to deduct a portion of the cost of the phone as well as the monthly cellular service fees
You may be surprised to learn that even streaming services like Netflix can be deducted If (and only if) there are shows you watch that you need for your business (there’s no getting away with claiming that Star Trek: Picard is a legit business expense). On the contrary, a freelance food writer can absolutely write off the cost of The Food Network. As these expenses vary by individual and because you may want to consider different tax strategies, you’ll definitely want to consult with a financial advisor on what you can and can’t write off and how to lower your tax burden.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.
