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What You Should Know About the Home Office Deduction During COVID

The coronavirus has brought about a whole range of tragic consequences, including record-breaking unemployment numbers, social unrest, and the loss of tens of thousands of lives. Under these difficult circumstances, it can be challenging to find something positive to at least gently brighten up the situation. As it turns out, COVID-19 may make many Americans eligible for a tax benefit known as the “home office deduction.” This may be a small perk, but at least it’s something. In this post, we will discuss the basics of the home office deduction and discuss how you may be able to take advantage of this opportunity. Not everyone will qualify, but for those who do qualify this deduction can prove to be quite valuable. Let’s look at the deduction in a bit of detail.

The Home Office Deduction During COVID-19

To start off, let’s first mention a very important point: the home office deduction is not available for W-2 employees. This is true even if you work entirely out of your home. If you’re a W-2 computer programmer and work entirely at home on your laptop, unfortunately you’re out of luck. In order to claim this deduction, you need to be self-employed. This situation came about fairly recently, actually, through the Tax Cuts & Jobs Act (TCJA). There is a possibility that the federal government may expand the availability of this deduction because of COVID-19. But, at the present time, the rule barring W-2 employees still stands.

If you are self-employed (i.e. sole proprietorship or single-member LLC) and maintain a home office, you may be able to claim the home office deduction. As with practically everything in the tax code, this deduction is shaped by various rules. You’ll want to consult with an experienced tax advisor to make sure that all applicable rules are followed correctly. But we can offer a bit of preliminary guidance when it comes to utilizing this deduction.

Basic Guidance for Claiming the Deduction

If COVID-19 has compelled you to convert part of your home into a business office, you need to be aware of the rules which apply to this deduction. There are two main rules which you need to follow when you try to claim the home office deduction: (1) regular and exclusive use, and (2) principal place of business. To satisfy the first rule, you need to make sure that the area you’re attempting to claim is regularly and exclusively used for business purposes. If the area you use is occasionally used for non-business purposes, then the deduction won’t be available.

To satisfy the second rule, the area you’re attempting to claim needs to be the primary place from which you operate your business. If you conduct your business mainly from an office outside of your home and merely supplement this schedule with infrequent home-based work, then you wouldn’t qualify for the deduction. The home office needs to be the main area from which you conduct business.

If you believe that you may be eligible, you’ll then need to determine which method you will use to compute the deduction. There are two options, the simplified option, or the regular option. The regular option may allow you to take a greater deduction, but comes with higher substantiation requirements. The simplified option is easier to compute and has less burdensome substantiation requirements, but has a lower maximum allowable deduction. Other guidelines apply to these options, but this quick summary will do for now.

Get in Touch with Trembly Law for More Information

If COVID-19 has caused you to suddenly open up your own home-based business, you may qualify for the home office deduction. As we mentioned, this deduction can be valuable, and so you should investigate this matter thoroughly if you think you may qualify. If you’d like to learn more, contact Trembly Law Firm today and one of our professionals can assist you. Our firm has experience in a variety of complex areas, including entity selection, business contracts, and others as well. Call us today at (305) 431-5678 if you’d like more information.

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