Working remotely – for all its pearls and pitfalls – is quickly becoming the norm in the business world as the pandemic has forced employees to vacate offices and migrate to the digital realm. Although several countries are starting to reopen workplaces (including the United States), many employees want to continue working from home due to the improved quality of life it affords.
Many persons who established temporary home offices in the early months of the epidemic renovated their home offices as they continued to work remotely in 2021. Others established home offices after leaving their employment to start their own enterprises or perform freelance work on the side.
Some people who work from home can claim a tax deduction for their home office expenditures, but many are not. It depends on whether you have a dedicated home office area where you do nothing else and if you work for someone else or are self-employed.
The home office deduction is currently exclusively available to self-employed individuals. This was not always true. The legislation was altered from 2018 to 2025 to abolish the home office deduction for employees.
If you’re an employee, your home office costs aren’t tax deductible, even if your boss closed the office and compelled you to working from home. “They are not eligible for the deduction,” says Morris Armstrong, an enrolled agent in Cheshire, Connecticut, who is allowed to represent people before the IRS.
However, these exciting developments come with many unforeseen costs and increased expenses, and thousands of employees have been left wondering whether they’ll need to cover these themselves or if the government is prepared to help them out. But first…
Working from home expenses: what can you claim for?
The most obvious cost that people are interested in claiming for is any equipment bought specifically for work. This ranges from small work expenses like stationery and books, to larger investments like desktop computers and software. When it comes to making claims, the key is to identify things that are required for you to perform your job – not luxury items that make you more comfortable.
Heating, electricity and water bills can also potentially fall under home office deduction. However, it’s important to remember that you should only claim for costs to the extent that they’ve increased since you started working from home. Accountants will also be keen to check whether or not your work equipment is actually likely to affect these bills, as large or specialist equipment may reasonably incur greater costs.
Is Your Home Office Eligible for the Tax Break?
To be qualified, your home office must also fulfill specific criteria. To qualify for the home office deduction, you must utilize a portion of your house for business “regularly and exclusively.” Your office does not have to be in a separate room, but it must be in a part of your home where you do nothing else. It can be a dedicated nook in the corner of your basement, for example, but it cannot be your family’s kitchen table.
It doesn’t have to be a wall; if you have a place identified as your working from home office and nothing else is done in that area, you have an exclusive location. In your basement, it may be only your desk and 5 feet surrounding it. If, on the other hand, it’s your kitchen table and your family eats dinner there, you’ve just forfeited the discount. Additional rules apply to day care facilities and inventory storage.
The facility must also be your principal place of business or a location where you often meet with clients or patients. It doesn’t have to be your only place of employment; it might be where you perform administrative responsibilities for your firm on a regular basis, for example.
What do we mean by ‘reasonable’?
Home office tax claims can usually be decided by one question – are they reasonable? Tax authorities have standards that need to be met before claims are processed and approved, and they’re likely to ask questions like: Do you work from home by choice or requirement? Is the computer used exclusively for work? How many adults and children are living inside the property? These (and more questions) will test the legitimacy of your expense claims, so before recording anything as a deductible, ask yourself: ‘am I being reasonable?’.
How Do You Figure Out Your Home Office Deduction?
There are two ways to claim the deduction. The streamlined method is simpler, but it may result in a lesser tax savings. The normal approach needs more complex computations and documentation, but it may result in a greater tax deduction. “To maximize the home office expenditure,” says Jean Wells, a certified public accountant and associate professor at the Howard University School of Business, “they should evaluate the expenses under both systems each year and determine which option generates the larger expense.” The approach might be changed from year to year.
What Other Home Office Expenses Can Be Deducted?
If you’re self-employed, even if you only perform freelance work, you may be eligible to deduct other expenditures for setting up a working from home office. Furniture and equipment, according to Wells, are deductible as business expenses on Schedule C.
For example, the cost of purchasing a computer (depending on how much time you use it for business), printer, secure modem, office desk and chair, filing cabinets, and even illumination for Zoom calls made for business can be deducted as a business expenditure on Schedule C. If you have a business phone line or internet connection, those expenditures may also be tax deductible.
The proof is in the pudding:
If you deem your claims to be fair and reasonable, the next step is to collect the necessary evidence to strengthen your case. Evidence could come in the form of receipts, bills or even invoices from your employer. The more detailed these documents are, the better chance you stand of having your claim approved. Be careful of making unnecessary claims, however, as home office tax claims can return to bite you in the backside later down the line. For example, when selling your home, your capital tax gains break will be reduced if you’ve previously claimed a room was used ‘exclusively’ for work.
Working from Home: Is it worth it?
We aren’t all cut out to be chartered accountants, and frankly, there are few subjects in the world as tiresome as taxation laws. However, it’s worth going through these steps (or finding assistance from a third party) to ensure you never have to pay extra for the fact of remote business model. Just remember to ask yourselves these two simple questions before making any claims: I) Am I being reasonable? II) Can I prove it?