Need to estimate your home office expenses for tax purposes? Are you drafting a WFH stipend proposal for your employer? Whatever your reason for tracking your work-from-home expenses, you need a clear, accurate, and transparent system. Use these tips and guidelines to estimate your WFH costs with ease!
Can I Write Off Work-From-Home Expenses on My Taxes?
Before we dive into tips and tricks on totaling your WFH expenses, you may wonder if tax write-offs apply to you. As more and more folks shift to working from home part-time or permanently, this question often arises: Can you write off WFH expenses on your taxes as an employee? And if so, what expenses can I claim when I work from home? Here’s what TurboTax says if you’re an employee and not a business owner:
“If you’re an employee working remotely rather than an employer or business owner, you unfortunately don’t qualify for the home office tax deduction (however, please note that it is still available to some as a state tax deduction). Prior to the Tax Cuts and Job Acts (TCJA) tax reform passed in 2017, employees could deduct unreimbursed employee business expenses, which included the home office deduction. However, for tax years 2018 through 2025, the itemized deduction for employee business expenses has been eliminated.”
Even if you’re ineligible to file a tax deduction, you may be able to get a work-from-home reimbursement from your employer. Some employers offer WFH office stipends to account for increased personal costs while working from home. And while you may wonder: “Can I deduct moving expenses if I work from home?” that’s up to your employer!
How to Calculate Work-From-Home Expenses
1. Calculate your WFH utility expenses.
To understand how to calculate your work-from-home utility expenses, you need to subdivide your living expenses versus office expenses. Sounds tricky, right? It’s not as intimidating as it sounds. Here are a couple of ways to do it.
- Decide how much of your living space is dedicated to working. Measure the overall square footage of the house or apartment, then measure the area you use for work.
- Calculate your total utility usage. Tally your electricity, heating, internet, and water bills for each month of WFH.
- Find your WFH utility usage. Multiply the number of days in the month by the total square footage of your space. Separately, multiply the number of working days in the month by the total square footage of your workspace. Divide your total bills by the first total space and total month number. Then, multiply that by the second total workspace and total workday number. That’s how much of your utilities have been work expenses. Since utilities are often variable based on use, make sure to calculate these totals for each month to ensure your taxes or stipend proposals are accurate.
Here’s an example: if you live in a home that’s 1,000 square feet, your workspace is 200 square feet, and your total monthly utilities are $450, your calculations would look like this:
31 days in a month x 1,000 square feet = 31,000
23 workdays in a month x 200 square feet = 4,600
$450 total utilities / 31,000 = 0.0145
0.0145 x 4,600 = $66.77 business-related utilities per month
There’s a second, more straightforward way to calculate your totals. The IRS has a simplified option for home office deductions with a prescribed rate of $5 per square foot with a maximum of 300 square feet. So, multiply the total square footage of your dedicated workspace by $5.
If you live in a home that’s 1,000 square feet, and your workspace is 200 square feet, your calculations would look like this:
200 x $5 = $1,000 total deduction
But you might also wonder, “Can I write off utilities if I work from home?” If you meet specific IRS requirements as a business owner, you may be able to.
2. Consider your office furnishings.
Have you purchased a desk? What about office lamps? Desk chairs? Whether you’ve purchased new or used furniture for your home office, all those home office furnishings and decor items may be tax-deductible if you’re a business owner. If you don’t own a business, these expenses may be eligible for work-from-home reimbursement from your employer.
3. Add up any invisible costs.
Have you downloaded or purchased new software for your home office? Did you need to switch from dial-up to wireless or fiber internet? Or even purchase a device such as a cell booster? These are invisible but measurable costs that can be added to your WFH expenses.
Shop CORT Furniture Outlet and Upgrade Your Home Office
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This post is purely informational. Please consult a tax professional for financial advice.