The 2020 Guide to Home Office Tax Deductions

with insights from Melissa Groves, Head of Tax Planning at Smart.

There’s a light at the end of every tunnel, and for some small business owners, tax season can provide a sizeable opportunity to save money.

With the increasing number of people working from home over the past few years, the home office tax deduction is a feasible way to maximize deductions, if appropriately handled. Here’s how small businesses can take advantage of the time spent running operations from home.

Who is eligible for 2020 home office tax deductions?

If you are a small business owner or self-employed and working from home, you could be eligible to benefit from the 2020 home office deductions under specific requirements. However, home office deductions currently do not apply to W-2 employees, unless you have a side business which would fall under the self-employed rule. Up until the 2017 Tax Cuts and Jobs Act (TCJA), the deduction previously extended to nearly everyone working at some remote capacity with a less prescriptive set of requirements to comply with.

Understanding tax credits vs. deductions

Tax credits and deductions are likely (if only) the most exciting step in filing taxes for business owners. Both exist to reduce your tax bill, however, in very different ways. This guide covers how to use deductions, but it’s essential to know how they differ.

• Tax credits are a dollar-for-dollar reduction of your tax liability that directly reduces the amount of taxes you owe, giving you. Some tax credits are refundable such as the Lifetime Learning Credit, but many include income restrictions. 
• Tax deductions are a dollar amount the IRS allows you to subtract from your adjusted gross income (AGI), making your taxable income lower. This means you’ll have a lower tax bill in the end.

Tax credits are more beneficial to reducing your tax bill. Both require meeting specific qualifications based on your filing status, current life events, and the amount of your income taxable. A tax advisor can help clarify if you meet the IRS criteria to qualify for both tax credits and deductions.