The most exact way to calculate the business percentage of your house is to measure the square footage devoted to your home office as a percentage of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5%. You may have heard that taking the home office deduction sends a red flag to the IRS and ups your chances of being audited.
Thirty-two states have graduated income taxes similar to the federal income tax. Ten states have a flat income tax, and nine states have no income tax at all. While working from home is convenient and comes with various perks, the increased utility cost and the need to purchase equipment to work efficiently can be a strain on your bank account. We encourage you to start a conversation with your employer about how they could help offset some of those extra costs — especially if you won’t be returning to the office any time soon. “If a recipient doesn’t choose withholding, or if withholding is not enough, they can make quarterly estimated tax payments instead,” the IRS says.
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It doesn’t matter if you work from home at that full-time job or work from an office, as long as you meet the other criteria that we’ll discuss shortly. Just like companies have the right to claim depreciation on their depreciable assets, independent contractors can also utilize these deductions. For instance, if you work as an independent freelancer who spent $1,000 buying a new computer that will be used for work, you will be allowed to take depreciation on that asset. While the specific method of depreciation that you choose is up to you, it is imperative that you remember to take this deduction as it can be quite hefty. For instance, if you claim bonus depreciation on a $1,000 computer, you will be able to deduct the entire cost against your earnings since the Tax Cuts and Jobs Act allowed for a 100% deduction. This deduction applies to any large purchase that can include everything from technology upgrades to actual furniture that you buy for your home office.
The home office deduction (aka Business Use of Your Home) is available to anyone who works remotely as an independent contractor or is otherwise self-employed. However, this does not include profit-seeking activities that how do taxes work for remote jobs are not part of a trade or business. For instance, you may not take the home office deduction just because you regularly trade stocks online. There are two methods for calculating your deduction for the 2022 tax year.
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One thing that you should keep in mind, however, is that the IRS will ask you to prorate how much time you spent using such services for personal use versus work-related use. The biggest roadblock to qualifying for these deductions is that you must use a portion of your home exclusively and regularly for your business. If you’re working from home for an employer during the pandemic, there’s a good chance your utility bills went up because you’re using your household electricity to get your job done. If, however, you’re looking to get reimbursed for these expenses through your taxes, you’re probably out of luck. Self-employed taxpayers and independent contractors still can claim the deduction, according to the Internal Revenue Service. For example, if you left a 9-to-5 job, started your own business in 2021 and use your home as your primary office space, you may be able to claim the deduction for part of the year, according to Wilson.