Since mid-March California was ordered to shelter in place and slowdown the spread of the coronavirus, businesses complied and transitioned to a work-from-home situation.
In 2018, The Tax Cuts and Jobs Act effectively eliminated the “miscellaneous itemized deductions.” On the other hand to offset the elimination of the deductions it increased the standard deduction for individuals.
For independent contractors and entrepreneurs who are working from home, qualified business expenses can still be written off.
Contractors and the self-employed have two criteria to meet the deduction.
- Home office should only be used to conduct business. It should be a specific square footage of your home that you use.
- The said space should your primary place of business. Meaning that you use your home office regularly and to do your work.
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How are deduction computed?
After meeting these conditions your tax preparer will deduct the cost of your home office in two ways:
- Simplified option– You are allowed to deduct $5 per square foot up to 300 feet.
- Regular method allows you to deduct based on the percentage of your home.
Also in the same deduction, the cost of your mortgage, taxes and other expenses can be deducted.
Home deduction tips
If this pandemic pushed you to work on your side hustle and build it as your primary income, here are straight forward tips from our experience.
Make it official– Designate a room or a specific area of your house for official business tasks and purposes.
Keep ALL records of expenses– Be exact and meticulous with tracking your expenses. Get yourself a software that can keep your receipts to streamline your records.
By the time tax season comes in, it’ll be easier for you to file taxes and be in the mindset of working for yourself.
If you have questions and concerns about your work at home situation, let us know.
