Home offices offer a great benefit for employees who need the flexibility to work outside traditional office hours, and for self-employed workers wanting to save some money on workspaces. They are also helpful for busy entrepreneurs who need a dedicated place to get work done without having to sacrifice time to travel to the office. For years, tax benefits have made home offices a wise investment for contract workers, freelancers, and other professionals. However, thanks to the new tax law, some of those provisions are disappearing, and will be affecting home offices and the deductions that go along with it.
If you’re unfamiliar with the previous tax law regarding home offices, here is a quick primer. A tax payer is allowed to claim up to ten percent of the square footage of their house as a home office. This space has to be used exclusively for your business or venture, meaning it’s not a corner of your kid’s playroom, but either a converted bedroom or office space you use for work or meetings. You can subsequently write off ten percent of your mortgage, insurance, and utilities. Or, you can take the “safe harbor” deduction, which is $5 times the square footage you claim, at a maximum of $1500. This tax deduction was available to both employees working remotely and self-employed persons.
As you know, The Tax Cuts and Jobs Act of 2017 was passed for the years 2018-2025. It eliminated the deduction for employees working remotely, but not for self-employed workers. It also eliminated miscellaneous and itemized deductions for employees who work from home. This results in a significant change for how many professionals will file their taxes.
It’s important to know that if you own your own business and work from home, you can still take advantage of the home office deduction. If you are still working for an employer and considering leaving to start your own business, we would advise you to talk with an accountant before starting out on your own or before you swing a sledgehammer to start your home office. We are always watchful for deduction for our clients and want to make sure that your tax plan is set up accordingly. No one likes surprises during tax time, and we want to ensure that your hard-earned money is used to accomplish your dreams as best as possible.
Contact us today to set up an appointment at 423-486-9300.