More and more people work from home. Those expenses you spent for the home office. Anything can be deductable?
Who qualifies for home office and who qualifies for the accountable plan?
Who qualifies for the home office deduction?
You generally need to be self-employed (meaning you pay self-employment tax) or otherwise own a business to claim the home office deduction. You can qualify if you have self-employment income outside of your regular job, but you can only deduct expenses related to your self-employment work. Regular employees, including people working from home because of COVID-19, cannot deduct work-from-home expenses or claim the home office deduction.
If you are employee of the company you can not deduct home office expense.
What qualifies as a home office
Your home office must meet two conditions:
· Your home is your principal place of business
· All or part of your home is used exclusively and regularly for business
As long as you satisfy those two requirements, it doesn’t matter whether your home office is in a house, condo, apartment, garage, studio, or barn. But you can only claim a fixed place, meaning no hotel rooms or temporary spaces. A home office could be one corner of your living room, as long as it meets the two requirements.
How to claim the home office deduction on your tax return
To use the regular method, complete Form 8829 to calculate your exact deduction and write the result on line 30 of Schedule C. Fill out a copy of Form 8829 for each office you used for business, and make sure to attach the completed forms to your tax return.
For partnerships and multi-member LLCs, you will use Schedule E instead of Schedule C.
For more help filling out your tax return, here’s our guide to Form 1040.
Expenses you can use for the home office deduction
Direct expenses you can deduct for the home office deduction:
· Furniture and appliances, including desks, chairs, lamps, printers, and even decor
· Office supplies like paper, ink, staples, or stamps
· A second phone, if used exclusively for business (your home’s first landline isn’t deductible)
· Long-distance calls for your business
· Repairs and maintenance, like painting your office walls or repairing a light fixture
Indirect expenses you can deduct for the home office deduction:
· Home utilities, including electricity, gas, and heat
· Trash removal for your home
· Cleaning services
· Internet
· Cost to install and maintain a security system
· Home repairs and maintenance that affect your office, not including permanent improvements such as home remodeling or renovating a building to turn it into an office
· Rent, if you rent your home or your office space (see more about deducting rent)
· Mortgage interest (also look into the mortgage interest deduction)
· Mortgage insurance premiums, including PMI
· Property taxes, which the IRS calls real estate taxes
· Condominium fees and homeowners association fees
· Depreciation of your home, if you own it (see IRS instructions for Form 8829 to learn more)
· Casualty losses, like from a fire or flood, unless it’s a federally declared disaster
Who qualifies for the accountable plan?
If you are the owner of the company and the office in home can only be deducted if you see clients there or if you always use it for some specific tasks. Example is a therapist who sees clients at an office, but does no admin tasks like billing or accounting or charting there. Partnership can deduct office in home as in unreimnursed partnership expense on Sch E. S corp and C Corp can do an “accountable plan” during the year and reimburse the owner for percentage of costs of the home based on square footage. It’s recommended to basically draft an 8829 every month and write a check from S corp to individual for the amount.
See IRS PUB 587 https://www.irs.gov/pub/irs-pdf/p587.pdf
A business can reimburse an owner, but not other employees for a home office.
What Is an Accountable Plan?
An accountable plan is a plan that follows the Internal Revenue Service (IRS) regulations for reimbursing workers for business expenses in which reimbursement is not counted as income. This means that reimbursements are not subject to withholding taxes or W-2 reporting. However, these expenses must be business-related to fall under an accountable plan.
accountable plans have been used to reimburse employees for business meals and travel expenses. However, there is nothing in IRS rules restricting reimbursements to these expenses. Today, in the era of the pandemic, businesses are paying for more employees’ costs, such as internet access, cell phones, and other employee costs for working remotely and personal protective equipment (PPE) to keep them safe from contracting or spreading COVID-19. OSHA requires employers to pay for PPE, but this can be handled by employees buying their own items and getting reimbursed for their costs. For the reimbursements of any kind to viewed as being under an accountable plan, three conditions must be met:
Business connection. There must be a business connection for the employees’ expenses.
Adequate accounting. Employees must account to the employer for expenses within a reasonable period of time (within 60 days of when the expenses are paid or incurred).
Refunding excess reimbursements. Employees who are advanced funds to cover expenses must return to the employer excess amounts (i.e., amounts not expenses on reimbursable items) within a reasonable period of time (120 days after expenses are paid or incurred).
Accountable plans may include reimbursement for a number of different employee-related expenses, including:
Employee travel expenses, including meals
Purchase of tools and equipment
Home office
Mileage costs
Required uniforms not suitable for ordinary wear
Dues and subscriptions
Cellphone
Internet;
Training and development;
· Administrative or management activities expense
Entertainment expenses are no longer deductible.
The employer must collect documentation that shows the amount, time, place, and business purpose of the expense.
REQUIREMENTS FOR A WRITTEN POLICY
An accountable plan need not be in writing; however, a written document provides a structure to ensure that the three required elements are addressed. A written expense reimbursement policy should clarify:
The time period for employees to submit expenses;
The process for requesting reimbursement, including what documents are required to prove the request;
The process for returning excess reimbursements or allowances;
The types of expenses that are reimbursable;
The maximum allowable amount for certain expenses; and
Preferred suppliers for reduced expenses.
If home office and accountable plan do not work You can use itemized deduction
An employee could claim an itemized deduction for unreimbursed business expenses to the extent they exceeded 2% of the employee’s adjusted gross income (AGI) when combined with other miscellaneous expenses subject to the 2%-of-AGI deduction threshold.
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