When you set up your home office with the perfect desk and a few coordinated desk accessories, you may have gotten some satisfaction out of knowing that you’d get a little money back for having that home office.
The home office deduction is one of the most cherished deductions for workers in the United States. In the past, both self-employed workers and some employees who worked from home benefited from the ability to write off expenses associated with keeping an office at home.
Unfortunately, tax reform, which was ratified in 2017 and is in effect for the 2018 tax season, has changed this deduction.
Who still qualifies for a home office deduction
Home offices have always been a qualified business expense for self-employed persons as long as they were dedicated spaces used only for business. This could also apply to stand-alone buildings on a person’s property, like art studios, or spaces you use only to work with clients. The good news is that this deduction remains in effect for self-employed workers. On the Schedule C form for qualified business expenses, you can still claim a home office as an expense.
Tax changes and those who no longer qualify
The tax changes are in home office deductions for people who are company employees and use Schedule A. In the past, when working from home was a benefit to your employer and not just convenient for you, deductions were available on your taxes, listed under miscellaneous itemized deductions. Unfortunately for those who had a good thing going with the home office deduction, all miscellaneous itemized deductions went away with the latest round of tax reform.
The good news for taxpayers
It can be worrisome when you realize that you no longer qualify for a deduction, but there are at least two things to consider as “pluses” with these changes. No tax deduction is in a vacuum; other changes to the tax code may be great news for you.
- First, the new standard deduction is far higher. For most, it’s so much higher that it offsets what you would have gained from a home office deduction. It also makes taxes simpler overall. So much time went into tracking miscellaneous itemized deductions and even more time was spent by the IRS in the process of verifying them. The tax code is slightly simpler because of this change. It may be a big-picture benefit rather than a personal one, but even if your home office deduction was cherished, it’s likely that you benefit at least in terms of saved time.
- Secondly, if the home office deduction for employees going away changes your financial landscape, you have more reason to consider self-employment. Certainly, self-employed people have to pay their own self-employment taxes and purchase benefits themselves, but when comparing the benefits and drawbacks of working for yourself, every money choice has an impact. If you’ve wanted to go into business for yourself for a while, look at the numbers now: Does being able to claim a home office as an expense create an opportunity to take the leap and go into business for yourself? Crunch the numbers and see if this is the kick in the pants that you needed to try it.
The home office deduction was a nice boon for those who live in large, expensive homes where the ability to deduct a spare room was quite welcome. However, a simplified tax code and an increased benefit for those who start their own businesses aren’t necessarily bad outcomes. If you treasure that home office and want to offset its cost, think long and hard about whether being self-employed is right for you. If you’re tempted, we have all the things you need to know to file your taxes as a self-employed person.