While you may be working from home due to the pandemic, you do not automatically qualify for a home office deduction. For example, if you work as an employee for a company (that’s not yours), you generally cannot claim the home office deduction.
What You Need to Know
- The home office deduction can be taken whether you own or rent your home.
- The term “home” includes:
- A house, apartment, condominium, mobile home, boat or similar property that provides basic living accommodations.
- A separate structure on the property such as an unattached garage, studio, barn or greenhouse.
- Any portion of a home used exclusively as a hotel, motel, inn or similar establishment does NOT qualify as a “home” for purposes of the home office deduction.
- Generally, your home must meet two basic requirements to qualify:
- A portion of the home must be used exclusively for conducting business on a regular basis. For example, if you use an extra room to run your business, you can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
- The home (or room) must be your principal place of business. You can meet this requirement if administrative or management activities are conducted, and there is no other location to perform these duties. So if you conduct business outside of your home but also use your home to conduct business, you may still qualify for a home office deduction.
- Certain expenses can be deducted, including mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
If you qualify for a home office deduction, you may choose one of two methods to calculate your deduction:
- Simplified Method. This allows a flat rate of $5 per square foot, which is limited to a maximum size of 300 square feet and a maximum deduction $1,500.
- Regular Method. This provides for a deductions of indirect expenses based on the percentage of the home devoted to business use, while direct expenses are deducted in full.
If you’re unsure of your situation, contact us. We can help you determine if your home office and related expenses are deductible or not.
2022 Social Security Benefits Increase 5.9%
More than 72 million Social Security and Supplemental Security Income (SSI) recipients will receive a 5.9% cost-of-living adjustment (COLA) for 2022 — the largest increase in nearly 40 years. The annual Social Security COLA is tied to the Consumer Price Index. Also in 2022, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000 from $142,800. Click here for a detailed 2022 Social Security Fact Sheet.
U.S. Inflation Accelerates
The Labor Department reported last month’s consumer-price index — which measures what consumers pay for goods and services — rose by 5.4% from a year earlier. Price increases from pandemic-related labor and materials shortages, including disrupted supply chains, have been pushing the increase. What’s more, spending jumped 11.9% in the second quarter as demand surged due to more people receiving Covid-19 vaccinations, businesses reopening and trillions of dollars in federal aid entering the economy.