Whether you are self-employed and work from home, you may be in need of a few tax preparation tips. This can be especially true when considering if you should deduct the expenses related to a home office. As technology advances, we see more and more professionals take on a freelance state of mind. We also see people working from home for a few days per week. While it will undoubtedly take the IRS a while to catch up with this trend, there are deductions and credits you can take now. So read on to get our 5 tips tax preparation tips for those who work from home.
1. The Simplified Method
This method is a sort of all in one trick that calculates your actual costs versus a percentage. This percentage is based on your the square footage of your home office. This simplified deduction allows you to claim up to $5 per square foot. It maxes out at 300 square feet. However, the upside is that you don’t have to keep track of all your related expenses. This could be useful for those who bought their computers, software, and more the prior year or earlier. Those who did have major expenses related to a home office should read on.
2. Part Time Not Allowed
For those poor souls who only work part time from home and still go to the office, you do not qualify. These home office deductions may not even apply to those who work four days a week from and one at the office. The IRS even notes the home office must have “regular and exclusive use.” Those who take deductions on it must prove it is the principal place of business. They use the term “substantially and regularly.” You can read more on the IRS official site.
3. Renters May Apply
If you rent your home that contains the home office, you may be eligible to take the deduction. Renters are allowed to deduct part of the rent. They are not allowed to take advantage of other deductions for homeowners. You may also not rent any part of your home to your employer while using this payment to perform work for the employer.
4. More Deductions for Homeowners
Those who own their home are allowed to take the following deductions:
- Real estate taxes
- Mortgage interest
- Purchase price of the home (if bought this tax year)
- Depreciation of the home (if the home lost value last year)
- State, county, city, and other local taxes on the home (as itemized deductions)
- Interest on the loan of the home (as itemized deductions)
5. Exceptions to the Rule
Those who use a particularly large part of their home for their business are eligible for certain benefits. One such example is a daycare facility. If you run a daycare regularly and use the same space for living, you can still qualify. In order to do so, you must prove that you are paid to care for those under 18. A daycare also qualifies if you care for those over 65 or who have been deemed physically or mentally unfit. You must have also have a license, registration, certification, or official approval as a daycare center. These rules vary by state. You can also qualify if you have applied for such a license or have been ruled as exempt. You may not claim the deduction if your license was revoked or application was rejected.
Houston Tax Preparation if You Work From Home
If you work from home and are looking for Houston Tax preparation, feel free to contact us to see if we can help.