Prior to the pandemic, only 23% of employees in the U.S. who could fulfill their job functions at home regularly did so. Now, that number is up to 59%. If you’re one of them, you’re probably wondering if remote work makes you eligible for any extra deductions.
Curiously, most remote work deductions are only available to people who are engaged in some form of self-employment. You need to be either exclusively self-employed or manage a side hustle alongside your traditional job. Fortunately, nearly a third of Americans meet this criteria — which means that nearly a third of Americans can take advantage of these seven special tax benefits.
The home-office deduction is arguably one of the most well known — and possibly most sought-after — home business tax write-offs. Unfortunately, working remotely for an employer isn’t enough to qualify you for this one. You have to perform some kind of work for yourself, too.
If you do generate self-employment income, you may be eligible. This doesn’t mean that sending a few emails from your sofa lets you claim your entire living room, though.
You have to have an actual home office — a space used exclusively and solely for business. It also needs to be your principal place of business. In other words, it’ll be easier for a freelance social media manager who conducts business at home to claim this deduction than a car dealership owner who spends 40-50 hours a week on the lot and doesn’t have a reason to do business at home.
If you are indeed eligible to write off your home office, you can claim the tax deduction one of two ways. With the simplified option, you’ll measure your office space and deduct $5 per square foot, up to a maximum of $1,500. With the regular method, you’ll base your deduction on the percentage of your home used for business.
Depreciation on big-ticket items
Another deduction for the self-employed is asset depreciation. This write-off essentially lets you claim wear and tear of pricey tangible assets — things like buildings, machinery, vehicles, and equipment. As with all deductions, there are a few caveats.
For starters, these must be assets that you own. If the social media manager from our last example rents their home, they can’t deduct the home’s depreciation. They might be able to deduct the depreciation for their laptop, however.
Additionally, the depreciation deduction only applies to assets you intend to use long term but not forever. Eventually, they’ll need to be repaired or replaced, but it’ll be awhile before that happens.
Even if you primarily work from home, you may still be able to deduct business mileage if you’re self-employed. Perhaps you need to meet with a client, attend a conference, or complete a food delivery order. In those cases, you can likely write off 56 cents for every mile driven.
Note, however, that driving to and from your principal place of business doesn’t count. If you work for yourself, that means you can’t drive home from the grocery store and say that you were on your way to your home office. If you work for someone else, you can’t claim your morning and evening commute.
Along those lines, most traditional employees won’t be eligible for this deduction, even if they do travel for work. If you’re in that boat, try to get a mileage reimbursement directly from your employer instead.
Memberships, subscriptions, and software
Professional memberships and subscriptions are another potential tax-saver. Before 2017, these were available to everyone with a job, but currently, you can only capitalize on these deductions if you have self-employment income.
If you are self-employed, take note of any monthly or annual subscriptions, software licenses, or membership dues that help further your business. You may be able to claim these as business expenses on your taxes.
Similarly, if you have any form of self-employment where business insurance is required or recommended, you can write off those premiums. This could be a business-use-only professional liability policy or potentially part of your car insurance premium if you use your vehicle for business purposes.
Furthermore, if you’re self-employed, you can lower your adjusted gross income (AGI) by claiming your personal health insurance premiums. To qualify for this deduction, neither you nor your spouse can be eligible for employer-sponsored coverage.
Internet and phone services
WiFi and cell phone bills seem to be creeping ever upward these days, so you may be crossing your fingers in the hopes that you can claim these expenses on your taxes. Like so many remote work tax deductions, the answer is a resounding maybe.
If you’re classified as an employee at another company, you unfortunately cannot deduct your internet and phone services. If you’re at least partially self-employed and use these utilities to conduct business, you can.
Like the home-office deduction, you can only deduct the portion of your communications expenses that you use for business. If 30% of your cell phone usage is devoted to talking to clients with the other 70% used to upload pictures of your dog to social media, you can only write off 30% of your cell phone bill.
One multi-figure tax break you can take advantage of whether you work for yourself or someone else is the retirement contribution deduction.
Regardless of who signs your check, you may be able to deduct up to $6,000 per year ($7,000 if you’re 50 or older) in traditional IRA contributions for the 2022 tax year (filed in April 2023). How much you are eligible to deduct may be subject to income limits. Plus, keep in mind that how much of that contribution you get back on your taxes can vary if you’re covered by an employer-sponsored retirement plan.
If you’re self-employed, you might be able to take the retirement deduction even further by opening a Simplified Employee Pension (SEP) or solo 401(k) and writing off up to $61,000 in contributions for the 2022 tax year.
These deductions can help you save a pretty penny on your income taxes — if you’re eligible. If you can’t claim any of these this filing season, get ahead for next year. Learning how to start a business is easier than you think and can do wonders for your tax strategy.
Once you’ve established your burgeoning enterprise, invest in the best tax software for simplifying the filing process and maximizing deductions. With these two steps, you can both increase your income and reduce your tax liability, putting more money in your pocket all year long.