Home office deductions: How to claim your deductions with Form 8829?

Yesou are in the right place if you want to know how to claim your home office deductions with Form 8829.

Tax breaks are often reserved for the self-employed or independent contractors, not employees of companies who are forced to work remotely due to the pandemic.

What is IRS Form 8829?

Self-employed individuals with a designated home office can claim a tax deduction for the use of their home for business purposes by completing Form 8829.

The Simplified Method (Appendix C) and the Actual Expenses Method (Form 8829) determine the amount of the deduction.

You may receive a share of your home’s overhead costs in addition to a deduction for your direct home office expenses, such as the cost of office furniture. You can follow the instructions on the form to determine what percentage of your home can be claimed for commercial purposes.

The actual expense method, although it requires more labor and record keeping throughout the year, generally results in a larger deduction.

How to be eligible for Form 8829?

Annex C

Only taxpayers who file Form 1040 Schedule C can use Form 8829. Schedule C is filed by sole proprietors and majority owners of single-person limited liability companies (LLCs), who can then use Form 8829 to determine their home office deduction.

Use space for nothing else

According to the IRS, you must designate a portion of your home to be used “exclusively and frequently” for your business in order to be eligible for a home office tax deduction. The ideal location is a basement or spare room well separated from the rest of your home.

You will need to demonstrate that your home office is not used for any non-commercial use in the event of an IRS audit. For example, if you’re still using your dining room for family dinners, it doesn’t suddenly turn into an office space.

Principal place of business

The primary location where you take on management and administrative responsibilities should be your home office. Although you can work elsewhere, your home office should be your primary location.

When your home office is your exclusive place to do business, according to the IRS, you must:

  • Bill customers, patients or clients
  • Maintain records and books.
  • Order products
  • Schedule meetings
  • Sending instructions or generating reports

Let’s say you work as a freelance consultant and frequently visit clients at their place of business. You have a designated area in your home where you can bill clients and handle your accounting even though you spend most of your time elsewhere.

Do not use the simplified method

If you choose the simplified method for the home office deduction, which gives you a $5 deduction for each square foot of office space, up to 300 square feet, you can waive filing Form 8829.

You would need to reduce the Simplified Method deduction amount to account for the months your home office was operational if you started operating your home business throughout the year.

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