Are you one of the millions of individuals working from the comfort of your home? With the shift to remote work, you may be wondering how it affects your taxes. The good news is telecommuting saves you big on your taxes!
From content writing to legal work, the list of tasks that can be done remotely is endless. And with tax benefits like deductions, credits, exemptions, and exclusions, you could significantly lower your overall tax bill.
But don’t let the complexity of tax regulations and legislation overwhelm you. In this article, you’ll learn how to maximize your savings by taking advantage of your tax benefits.
Benefits of Working from Home
Working from home provides a unique opportunity to combine career success with a comfortable and flexible lifestyle. Let’s look at three ways working from home can benefit you.
Improved Work-Life Balance
Long commutes and stretches of time away from family and pets are things of the past for remote workers. Rather than being tethered to a desk from 9 to 5 PM, working from home means you can actually achieve a satisfying work-life balance.
Depending on your job, you can either create your own schedule or work a set schedule set by your clients. Either way, you’re still working from the comfort of your home. If you need to sign for a package, you can. If you need to be home to let the plumber in, there’s no issue.
Some remote workers rave about the fact that they can take work calls, check email, or send out a few messages on Teams while dropping their kids off at school.
Did you know that between gas, car maintenance, transportation, parking fees, and work attire, remote workers can save roughly $4k per year just by working from home?
It’s like getting a raise, in a way.
No more paying for lunches out in trendy restaurants and cozy delis. All that money winds up back in your pocket.
This can help employees, too, however. If you get to work from home for at least half the week, you’re still saving money.
Less Stress, More Wellness
Say goodbye to stress and hello to well-being. With less commuting time, you can focus on self-care and prioritize activities that improve your mental and physical health.
This can include getting extra sleep, spending time with family, working out, or eating a healthy breakfast.
In fact, over the last few years, there’s been an uptick in portable treadmills. It’s easier than ever to get your steps in while knocking out a Word Doc.
Setting up the Dream WFH Office
You don’t need to spend a fortune setting up a space so you can comfortably work from home. In fact, as long as you have the essentials, you can slowly customize your space over time.
These essentials include:
- A chair you can comfortably sit in for hours at a time.
- Task lighting so you can take notes during meetings and diffuse some of that glaring light from your monitor.
- A computer (desktop or laptop), so you can get work done.
- A desk that’s big enough for the computer and lamp, at the very least.
Everything else is a bonus, although noise-canceling headphones are arguably essential too. Not only do they block the outside world so you can concentrate on work, but they also make it more enjoyable. And who doesn’t want that?
Whatever you decide to invest in beyond the essentials, make sure you leave enough room in your budget for cozy touches. After all, the more welcoming your home office is, the higher the odds you’ll enjoy being in there.
Consider adding throws, pillows, rugs, candles, and warm lighting. Those small touches of softness and texture can really do wonders for a space.
Even things like having several calming playlists ready to go can have a huge impact on your workday. Less clicking to find songs you like and more time actually enjoying them.
Finally, keep things organized so you always know where everything is at any given moment. Keep notepads and pens in a top drawer, and maybe spare chargers nearby.
Backup snacks are also good, especially if they help you prioritize healthy choices. It’s an excellent way to avoid that 2 PM sugar crash.
Tax Benefits Associated with Working from Home
The COVID-19 pandemic has shifted how people work. One of the unexpected benefits of this change is the opportunity to take advantage of tax breaks associated with working from home.
Whether you’re a homeowner or a renter, you could be eligible for deductions on your taxes, thanks to the increased number of people now working remotely.
Claiming the home-office deduction requires you to use part of your home exclusively and regularly as your primary place of business. You can deduct expenses like repairs, utilities, and even a portion of your rent or mortgage, based on the size of your home office compared to your entire living space.
If you’re feeling overwhelmed, don’t worry. There are two ways to calculate the home-office deduction, and IRS Form 8829 can help you figure out the expenses you can claim. The simplified version allows you to take $5 per square foot of your home office, up to 300 square feet, while the regular version requires you to keep track of your actual expenses.
Whether you opt for the simplified or traditional method, you’ll be taking advantage of an exciting opportunity to reduce your tax bill and keep more money in your pocket.
What if You Aren’t Self-Employed? Any Tax Breaks?
For those who now find themselves working from home but are traditional, full-time employees who receive a W-2 for tax purposes every year, it can be a heart-wrenching experience to see others benefit from the home-office tax deduction while you are left out.
Despite the limited savings, the $1,500 maximum for the simplified deduction could still mean a write-off of $525. This could bring hope to those feeling the financial burden of the pandemic. However, taking the deduction could make it harder to sell your home in the future, which may lead to a tax event.
Nevertheless, the home-office deduction could still be a blessing in disguise, worth considering despite its limitations if you’re eligible.
Working from home has become a reality for millions of Americans, and it’s worth taking advantage of the deductions for taxes that come from it. Maximizing your tax savings and reducing your financial burden is always a smart financial move, so it’s important to explore all your options and make the best decision for your situation.