Ah, working from home. You can blast recordings of yodeling choruses or harmonica orchestras at full volume. You can have no fear of being “that person” who microwaves fish or popcorn. You can wear comfortable clothes, or for those who use webcams while working, you can halfway wear comfortable clothes. And there’s nothing like the commute of walking to the next room.
But you can deduct things too.
This subject has a lot of exceptions and what-ifs because everyone’s work situation is different and has quirks to it which can’t all be covered here. For example, what qualifies as a home office and what if it is a structure outside of the home and such. The rules need to applied to each situation. That’s my job! However, in general it is good to know what records to keep and what to keep track of. So here it is.
Home Office Deduction
In many situations, some things can be apportioned using the square footage of the office verses the total square footage of the home such as:
- Mortgage Interest
- Real Estate Taxes
- Casualty Losses
- Utilities (electricity, gas, trash removal, and cleaning services)
- Depreciation of Home
Sometimes it might not be apportioned by square footage and you would take 100% if the nature of the deduction can be directly applied to the office. For example, if thieves took sculpting knives and carved the home office room out of your home and sold it on EBay – that would be a 100% home office deduction casualty loss. Also, painting just the home office walls would be another example.
A word about depreciation. I hear this a lot: “I don’t depreciate my home for my home office because I don’t want to have any gain when I sell.” Well, the IRS states that you have to report that gain for depreciation whether or not you claimed it. However, if you use the safe harbor method below, you are ok because that makes your depreciation zero for this purpose!
Recently the IRS introduced a simpler safe harbor way of doing things for the paperwork adverse. Assuming you qualify for the home office deduction, you can deduct $5 (as of this post) per square foot of your home. So far, I have rarely seen a situation where this is a larger deduction than the actual expense method above. But sometimes it can have advantages such as that depreciation issue and when there are recordkeeping issues.
People who work from home also commonly have these deductions:
Having a home office in many cases means that your principal place of work is your home. If that is the case, then the mileage from home to other work related locations can be deductible and won’t be considered commuting. That is very nice because you can’t normally deduct commuting costs from going from home to work!
A mileage log is a necessity, though. I know it is a pain. Just do it. A mileage log would have more than just mileage though – it would also have the date and the business purpose.
Cell Phone Use
You can deduct business cell phone usage. You no longer have to substantiate every call. However, it is a good idea to still substantiate the business percentage to support the deduction.
The internet is almost required to work at home. So it makes sense that it would be a deduction. However, it can be common that the internet is also used personally. So again it is a good idea to try and substantiate the business portion of the internet you need for your home office.
Where you deduct these things can change depending on your situation but these are general guidelines to help with your paperwork.
So congrats now you have the best of many things by working from home AND you can deduct things too! Maybe you’ll actually enjoy tax time!……. Nah I’m guessing not.