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Claiming Home Office Deductions for 2021 Tax Return

by | 8 March, 2022 | Blog
The pandemic brought with it the sudden closure of many workplaces. Where possible, employees of those workplaces began setting up home offices and working from home. Now, as those employees are preparing to file their tax returns for 2021, the question frequently being asked is, “Can I claim a home office deduction?” The answer to that question is not quite as simple as it may seem.

Consulting with a tax expert, like those at Melanin Tax Solutions, is always a good idea, especially with the confusing changes to tax laws.

Transition to Home Office

According to a recent Pew Research Center survey, of the workers whose jobs realistically could be done from home, only 1-in-five say that they worked from home all or most of the time prior to the pandemic. Now, 71% of them are working from home all or most of the time and would actually prefer to continue doing so even after workplaces open back up after the pandemic.

Surveys are indicating that those working from home are meeting their job objectives and goals, completing tasks successfully, and are meeting often with coworkers and employers through online meetings to maintain good workflow and continuity.

Who Qualifies for Home Office Deduction?

To qualify for the home office deduction on your tax return, the Internal revenue Service requires that your home office meet both of these conditions:

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It must be your principal place of business

Meaning that even if you sometimes meet briefly with coworkers or clients at another location, the home office is your primary location. For those in construction or other industries that frequently require your presence at job sites, etc., your home office still qualifies as your principal place of business if that is where you do tasks that would ordinarily be done in an office like scheduling, bookkeeping, billing and records storage.

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It must be used exclusively and regularly for business

Meaning it cannot serve, even rarely, as a guest room. Your children cannot use it to do homework assignments, and you cannot store household items there, even temporarily. It must be exclusively used for a home office, nothing else. It must also be used regularly, not just o the weekends or every few weeks or months. Again, for those in construction or other industries that frequently require your presence at job sites, etc., your home office still qualifies as being used regularly for business even if you are only physically there in brie spells to do those tasks that are ordinarily done in an office like scheduling, bookkeeping, billing and records storage.
Even if this home office is set up only to store inventory, or as a place to meet with clients, if it meets these two requirements, being used regularly and only for this purpose, you can claim the home office deduction. This also applies if your home office is a detached structure, such as a garage, shop, or shed.

And this applies even to those who are not homeowners. If you live in a mobile home, an apartment, whatever type of home you live in, if there is a designated space that meets those two very specific requirements, you are eligible to claim the home office deduction.

However, even though you may be working from home if your employment status is not self-employed, independent contractor, or something similar, you are not eligible for the deduction. In other words, if you receive a regular paycheck or W-2 exclusively from an employer, you cannot claim the deduction even if you are working from home due to the pandemic or any other reason.

Calculating the Home Office Deduction

There are two methods for calculating the home office deduction – the simplified method and the regular method.

The simplified method is best for those who don’t have a lot of business expenses, or who haven’t documented their expenses very well. With the simplified method, you can claim five dollars ($5) per square foot of the space designated as your home office. But there is a claim limit of 300 square feet, so the maximum amount you can claim is $1,500.

With the regular method, good record keeping is key. With this method of calculating the home office deduction, you can claim up to 10% of your verifiable expenses. And, if those expenses exceed your income, you can carry over the remainder to the following year’s tax return.

Beyond your actual expenses for supplies, equipment, samples, advertising, etc, this version allows you to also claim a percentage of your mortgage, utilities, etc. The percentage of those expenses that you are allowed to claim is determined by the size of your home office in relation to the size of your home. For example, if your home is 2500 square feet, and your home office occupies 250 square feet within the home, you are allowed to deduct 10% of those expenses.

Calculating your deduction using both of these methods can help you determine which version to use when filing your taxes. Those with larger homes may find that the simplified method actually gives a larger deduction.

Another factor to be aware of is that if you claim any of these expenses, like property taxes, on Schedule A of your return, you cannot include any portion of that as a part of your home office calculations. However, if that expense exceeds allowable limits on Schedule A, you can claim your home office deduction portion from that amount. Just be careful not to claim an amount that is more than the “extra” amount that exceeded the Schedule A limit.

Conclusion

With changes to tax laws and changes to the way – and location – millions of Americans are working, consulting with a tax expert like those at Melanin Tax Solutions can help you clarify your tax situation. Contact us today to see how we can help you navigate confusing tax laws, and access the most advantages for you on your tax return