If there’s anything positive that has come from the pandemic, it’s that working from home has become a lot more normalized. Some individuals are self-employed and working from home, while others are still working for outside companies, but are able to telecommute.
If you work from home, there are ways to take tax deductions associated with that, and it’s usually in your best interest to do so. You could even use the money you save on your taxes to pay off debt. If that’s something you choose to pursue, you can look into the snowball vs. avalanche debt payment methods to see which one might work best for you.
Here, we’ll talk about how to keep more money in your pocket that you can then use for other purposes by claiming work-from-home tax deductions.
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Not Self-Employed, But Working From Home
Working from home while employed by a company is different from working from home and being self-employed because there are different tax rules for each system.
The most significant difference between the two work models from a tax standpoint is that you can’t use your home office as a tax deduction if you’re a contracted employee for an outside company, but they’re allowing you to work from home. You can tell whether the IRS considers you a company’s contracted employee depending on whether they want you to file a W-2 during tax season.
You might enjoy working from home while still being employed by a company, but you won’t see the tax benefits from it that you will if you are truly self-employed.
Independent Contractors
The ones who can see tax benefits from working from home are those who are actually self-employed. Again, these are individuals who don’t get a W-2 from a company. They are independent contractors, which gives them a different tax status. That makes a difference when April 15th comes, and you’re getting ready to do your taxes.
If you’re an independent contractor, you might have a job as a copywriter or a web designer. Perhaps you make products in your home that you ship to stores that sell them for you.
Tax Deductions
Now you understand who can take these deductions and who can’t. If you fall into the self-employed category, instead of a W-2 employee, you should get a 1099-NEC tax form from the companies for which you worked. This means the companies are stating that you’re an independent contractor rather than a contracted employee.
With this status, you can claim a home office on your tax return as a deduction. Claiming the home office deduction means you’ll need to figure out what percentage of your home you use for your business.
For instance, if you determine that you use 20% of your home for work purposes, you can then deduct 20% of your utility bills on your tax return. You can also deduct 20% of your repair and maintenance bills, your homeowner’s insurance, mortgage interest, property taxes, and either your rent or mortgage payments.
Claiming Work-From-Home Tax Deductions is Fairly Easy
Figuring out whether you can claim your home office as a tax deduction when tax time comes is usually as simple as determining whether you’re a contracted employee who gets a W-2 or an independent contractor who receives a 1099-NEC tax form from companies for which you worked. This is essentially the difference between working from home and being genuinely self-employed.
Assuming you’re self-employed, you can claim your home office as a tax deduction by calculating how much of your home you use for work. You can deduct the percentage of your home that qualifies and also the same percentage of your property taxes, mortgage interest, maintenance and repair bills, and so forth.
If you’re self-employed and have any additional tax questions, it’s helpful to reach out to a tax professional for clarification.
