Wondering if your small business can snag some tax breaks for your home office during the COVID-19 pandemic? Concerned about the potential audit risk tied to claiming the home office deduction? Let’s break it down.
To qualify for the home office deduction, generally, you must meet one of these criteria:
Exclusive and Regular Use:
A part of your living space must be regularly used for your business. This includes various structures like your house, apartment, boat, or even an unattached studio or garage. However, it excludes spaces used exclusively for lodging businesses like hotels.
Principal Place of Business:
In order to be eligible, your office must either be the principal location of your business or a place where you routinely meet with clients. Exceptions exist for certain businesses like daycares or storage facilities.
If you’re an employee working remotely, you might not qualify for the home office tax deduction due to changes brought about by the Tax Cuts and Jobs Act. Previously, employees could deduct unreimbursed expenses, including home office costs. However, for tax years 2018 through 2025, these deductions have been eliminated. Yet, if you have a part-time business at home while being an employee elsewhere, you could still pass the home office test.
For the self-employed, the IRS has eased qualifications for home office deductions. Let’s consider an example: You reserve a room in your home for a full-time business, working in it ten hours a day, seven days a week. If you allow your children to use the office for homework, you breach the exclusive-use requirement and lose eligibility for home office deductions.
Navigating these intricacies is where consulting with independent tax professionals or a tax attorney becomes crucial, especially for complex scenarios. They can provide tailored advice, ensure compliance, and maximize your eligible deductions, offering peace of mind in the face of ever-changing tax regulations.
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