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In our last blog, we reviewed who qualifies for tax deductions for remote work. Specifically, we identified that since 2018, only self-employed individuals could claim a home office deduction. In part two of this series, we’ll unravel how to calculate the deduction, report it, and what additional deductions may apply. As always, Edgewater CPA Group stands ready at the helm to assist you with all your financial, tax, and accounting needs.
How To Calculate Home Office Tax Deductions for Remote Work
Typically, an individual who is self-employed chooses from two options: simple or standard. The simple version multiples the deduction allowance by the square footage that makes up the home office. Keep in mind the deduction amount depends on the square footage of your office space.
The second option allows you to deduct a percentage of actual expenses incurred, such as a mortgage, utilities, and the like. The second method requires bookkeeping and record-keeping to track expenses, and the calculation is not as straightforward. That being said, this method may result in a larger deduction. To determine which is best, calculate the deduction using both methods and choose the higher of the two.
How To Report a Home Office Deduction
Do you remember part one of this series referring to Schedule C? As reported, this IRS form reports business income or loss. However, you can also report the home office tax deduction for remote work on this form when calculated with the simple method. Otherwise, the standard method requires reporting the deduction on Form 8829. Then, submit the form along with your income tax return once prepared. Finally, report the total deduction on Schedule C.
In some cases, the deduction may be more than the business income. If this happens, you can’t claim the entire deduction. However, the upside is that the deduction amount that exceeds the business income may carry over to the following year. Consequently, the IRS only allows this when using the standard method, not the simple method.
Possible Additional Deductions
In addition to the home office deduction, you may be able to deduct additional expenses. For instance, office equipment, electronics used for business purposes, and even furniture may qualify as tax deductions for remote work. Consult with your tax advisor, and if they agree, report them as business expenses on Schedule C.
Edgewater CPA supports corporations, the self-employed, and individuals with tax preparation, business tax strategy, bookkeeping, payroll, and more. When you have questions, we have answers. Schedule a consultation with one of our financial experts or call (317) 207-9269 to schedule an appointment at our Carmel office.