What Deductions Can You Take When You Run Your Business From Home During the Pandemic?
If you work at home or you were one of many business owners to run your business from home during the pandemic, you’re probably counting on a home-office tax break next January. It probably won’t work out that way. Changes implemented by the 2017 Tax Cuts and Jobs Act modified or eliminated many of the breaks home workers took for granted.
Until the COVID-19 pandemic turned the business world upside down, these deductions were primarily important to home-based business owners and self-employed workers. With so many people carving out spaces for in-home productivity, that need has shifted and expanded.
You might have been forced to run your business from home during the pandemic. You might be an employee still helping to keep a major corporation up and running. Regardless of the reason for your work at home status, it seems reasonable that the CARES Act would support at least a temporary reversal of the TCJA standards. That hasn’t happened and it’s unlikely to change before the first of the year.
Why Would the Deduction Change?
The IRS has always seen work-at-home deductions as a red flag. They concluded that many people claimed them when they didn’t qualify. They conducted audits accordingly.
The way it now functions, if you are a business owner and you run your business from home during the pandemic, you still qualify for home-office deductions. If you work for someone else and you also have an office at home, you probably don’t.
What Home Office Restrictions Apply?
Those who do qualify to take home-office deductions must meet guidelines outlined in Publication 587, Business Use of our Home (Including Daycare Providers.) Here are a few:
- The area that you use in your home must be used regularly and exclusively for business.
- It must be your principal place of business.
- You must use your space to meet patients, clients, or customers.
- If you use a separate free-standing structure exclusively and regularly for your business, it doesn’t have to meet all of the above criteria.
Some Miscellaneous Itemized Deductions Are Also Gone
Prior to the TJCA, employees could claim job-related expenses when they itemized their tax deductions. You claim an amount that exceeded two percent of your adjusted gross income. The TJCA didn’t actually eliminate those miscellaneous employment-related deductions. It suspended them. You may still incur those costs, but until the suspension ends (2025) you can no longer claim these and other job-related costs.
- Unreimbursed employee expenses
- Educational Expenses
- Job Search Expenses
Good Bookkeeping Practices Help You Stay Compliant
If you run your business from your home during the pandemic, good bookkeeping is the key to remaining IRS-compliant. The IRS doesn’t require you to send in your home-office business documentation with 2020 your tax forms, but you must be prepared to produce it on demand.
At Goode Bookkeeping and Consulting, our professionals give our clients the benefit of our meticulous bookkeeping. If you are one of the many people who run your business from home during the pandemic, we document, track, and organize your financial data. We store it digitally on our secure cloud platform. We produce financial reports on demand.
Contact Goode Bookkeeping and Consulting
If you run your business from home during the pandemic, we’re available for bookkeeping services when you need us. We work virtually and remotely so we never have to invade your home-office space. To learn more about our bookkeeping and consulting services, call us at 860-659-6543 or complete our consultation form to arrange a free appointment.