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In response to coronavirus, more people and companies shifted their operations and work to remote locations. A majority of the workforce decided to work from home to minimize the spread and risk of contracting the deadly virus. With the effects of the COVID-19 pandemic still being felt, this trend is set to continue, with several companies opting to let their employees work from home permanently.
Working from home comes with numerous tax advantages that in-office employees may not be eligible for. However, before claiming these deductions, you need to check if you meet the criteria laid out by the IRS. Here are a few tax tips you may want to consider if you’re a work-from-home employee.
Consider your Home Office as a Deduction
Home office deductions are awarded to employees who transform their living spaces into offices instead of renting out an office space. As stated before, in recent months, more people have relocated their offices to their homes for convenience or safety. However, sales representatives working in a different state from the employer can decide to set up a home office instead of renting out space.
If you use your home office regularly and exclusively to conduct business; you may be eligible for various home-related deductions—for example, property taxes, mortgage interest, homeowner’s insurance, and utility payments.
Expenses you can claim
As stated before, working at home means adjusting your home to meet your work needs. When filing your tax deductions, there are several; tax claims you can claim as part of your office running expenses. These include:
- Depreciation of office equipment.
- Internet costs.
- Utility expenses such as electricity and gas for heating, lighting, or cooling your home office.
- Depreciation of furniture.
- Telephone costs.
Keep Track of Mileage and Travel Expenses
Working from home doesn’t necessarily mean always staying at home. In some cases, you may have to travel from one place to another on a business-related trip. During these travels, if you use your personal vehicle for a business trip or pay for your journey out of pocket, these expenses may qualify you for a tax deduction when you file your returns.
Keep in mind that you cannot get a deduction for expenses reimbursed by your employer. However, if your employer refunds only a portion of the standard business mileage rate, you can deduct the deficit for every mile covered.
Keep Detailed Records and Receipts
Working from home requires you to set up an office, meaning buying new equipment and resources. In some cases, the employer may provide the necessary resources to set up a home office. However, you need to keep a detailed record of all the expenses you wish to claim as deductions if they don’t. Keep in mind that the IRS may request a written record or logbook of all the expenses. You could as well keep these records on your computer.
You also need to retain all receipts as proof of payment for all tax-related expenses. Other proof of payment may include credit card or bank statements, itemized receipts, and canceled checks. When using cash, ensure the receipt has the payment date, amount, and payee’s name.
Be Aware of Limitations on Deductions
Once you have all your expenses figured out, it’s time to file your tax returns. You have the option to do this on your own or hire a CPA to guide you. Employee expense deductions are reported under Form 2106, Employee Business Expenses; this form is then attached to Form 1040. The expenses listed are then entered on your Schedule A, Itemized Deductions. Remember that it is not easy to deduct reimbursed employee expenses if you don’t itemize the deductions.
This process may seem hectic, especially if you are not familiar with tax deductions. This is where a tax advisor comes in; a certified and experienced advisor can help you fill all the necessary forms. This way, you can get the most out of tax deductions. An advisor also helps you understand the limitations of these deductions. For instance, employee expenses are included under miscellaneous deductions, and figures greater than 2% of the adjusted gross income are deducted.
Several tax benefits come with working from home. Most of them are in the form of a tax return which you can use for your personal projects. However, it would help if you researched various tax laws, regulations, and limitations related to working from home.
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