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Avoid the Audit: How to properly handle home office tax deductions

The coronavirus pandemic has forced millions of working Americans out of their offices and into their homes.

Forty-two percent of the workforce is now working where they live. Besides no commute, another perk? A possible tax break!

If you’ve been working from home, you may be wondering if you qualify for a home office tax deduction.

If you’re an employee at a company, meaning you receive a W2, you are ineligible. Only those who are self-employed can apply. There are two main qualifications: you must use a portion of your home exclusively and regularly for your work. And your home must be your principal place of business.

However, it may be a red flag for auditors.

“One of the expenses you can deduct for a home office, if you own a house, is depreciation on the house,” said Gary Kane, CPA, of Kane & Associates.

If you do decide to make a claim, the IRS offers a simplified option. The 2020 rate is $5 per square foot with a maximum of 300 square feet. So, if your office is 200 square feet that would be $1,000. The traditional method involves figuring out the percentage of your home that’s devoted to business use you can deduct a portion of direct expenses.

Certain businesses, such as day cares, may have different qualifications for a home office deduction. These are complicated tax issues so be sure to check with your own tax advisor.