Some workers and business owners may be able to deduct home office and related expenses on their annual tax returns. The IRS Form 8829 helps taxpayers make these calculations and guides them through everything they can and can’t claim for home office deductions.
More Americans are working from home since the COVID-19 pandemic closed many offices, and many workers are wondering whether they can deduct home office expenses on their taxes. Most regular W-2 employees cannot claim these deductions, but understanding what can and cannot be deducted when you use your home for business purposes is essential for anyone who’s self-employed or owns a business.
This guide will walk you through what IRS Form 8829 is, when you may need to file it, and more detailed steps for filling it out when tax season rolls around. We will also look at common missteps to avoid when filing this form.
What Is IRS Form 8829?
Taxpayers use Form 8829, Expenses for Business Use of Your Home, to claim expenses related to using the home for business purposes. This form helps you calculate the percentage of your home used for business, your business income versus expenses, the depreciation of your home, and any other expenses that are considered “unallowed” by the IRS or could be carried over to the next tax year. There are two methods for figuring the home office deduction:
- The simplified home office deduction: The simplified home office deduction allows you to take a standard deduction of $5 per square foot of the home used for business and skips Form 8829 entirely.
- The regular home office deduction: This method calculates your specific deduction using Form 8829.
It is possible to take a home business deduction that does not require you to file For 8829. Let’s look at when you may need to file this particular IRS form.
When Would You Need to File IRS Form 8829?
Just because you work from home does not mean you are eligible to take business or home office deductions. Regular W-2 employees are no longer able to deduct home office costs, and employers are not required to cover the costs of working remotely (though many do).
Business owners and self-employed taxpayers can use Form 8829 to record associated home office expenses. You can deduct these costs if your home is:
- Your principal place of business
Consider the amount of time you spend working there and whether you use it exclusively for administrative or management activities. This is important if you need to calculate SG&A expenses. You also must not have another business location used for the same purposes.
- Used by your customers or clients
You need to use your home to meet with clients, patients, or customers as required in the normal course of business.
- Used in connection with your business or trade if it is unattached to your home
Some offices may not be attached to the home and are separate structures, but these still must be used in connection to your business to be eligible.
- Used regularly
The home office must be used regularly to qualify.
Complete Form 8829 if you use a space in your home in this manner to calculate expenses for your tax return using the regular home office deduction method.
4 Steps to Fill Out Form 8829
There are four steps you should take to correctly fill out Form 8829:
1. Calculate the part of your home used for business
Part I of Form 8829 helps you figure out the precise percentage of your home that is used for business by dividing the total square footage of your home by the square footage used for business.
2. Calculate your allowable deduction
List all of your business income and deductible expenses in Part II of the form. The document will guide you through the process to find your total allowable expenses.
3. Figure out your home’s depreciation
Part III of Form 8829 helps you calculate depreciation, which impacts your deduction.
4. Figure carryover of unallowed expenses
List operating expenses and excess casualty losses and depreciation in Part IV. The form will guide you through these calculations, as well.
There are only four simple parts to IRS Form 8829, and the instructions included on the form will help you understand exactly what needs to be entered on each line. The instructions for Form 8829 document from the IRS provides even more detailed guidance for each line item.
What to Watch Out for With Form 8829
Always be sure you’re filling out IRS forms properly so you don’t miss any requirements or make mistakes. Watch out for these common missteps when dealing with IRS Form 8829:
- Always make sure you’re using the latest version from 2020.
- Keep accurate, up-to-date records and double-check all of your numbers before submitting your form. Inaccuracies can lead to problems down the road and inquiries from the IRS.
- Make sure you qualify for the home office deduction. Remember that regular W-2 employees who happen to work from home do not qualify. (If you work from a kitchen table, on the couch, or corner of a bedroom, that space also may not qualify. Get professional advice if you’re not sure.)
Consider working with a tax professional to ensure you don’t make any mistakes and complete Form 8829 correctly. You never want to put your business at risk of a tax audit.
Silver Tax Group Can Help You File Form 8829
It is always wise to talk to a tax professional when filing home office deductions, whether you’re working remotely for your company or running your own business. It’s crucial to take advantage of every business tax deduction available to you. The COVID-19 pandemic created new considerations for taxpayers, and more employees may have questions as they have shifted to working from home.
The professionals at Silver Tax Group are here to help when you need assistance understanding IRS Form 8829. We will guide you through everything you need to include in your annual tax return and help you understand all the implications for your business.
Our tax lawyers and experts provide tax services for clients across the country, including tax consulting, emergency tax services, litigation and defense, tax fraud investigations, and much more. Contact Silver Tax Group to speak to a tax expert about IRS Form 8829 or other home office-related tax questions.
