How do I report business expenses and home office deductions for remote work?

Here’s what HIVE AI had to say about “How do I report business expenses and home office deductions for remote work?”:

Reporting business expenses and home office deductions for remote work

First determine your worker status

• If you are self-employed (sole proprietor filing Schedule C), you generally deduct ordinary and necessary business expenses under section 162 on Schedule C and take the home office deduction on Form 8829 (or the simplified method) flowing to Schedule C. 1
• If you are an employee, unreimbursed job expenses are generally not deductible through 2025, except for limited categories (Armed Forces reservists, qualified performing artists, fee-basis state or local officials, or employees with impairment-related work expenses). Those who qualify typically use Form 2106 and report via Schedule 1. 2

Self-employed: where and how to report

Schedule C and Form 8829

• Report ordinary and necessary expenses (supplies, advertising, contract labor, etc.) on Schedule C under section 162. 3
• If you claim a home office using actual expenses, complete Form 8829 to compute the allowable deduction; it flows to Schedule C. If you use the simplified method, follow the Schedule C instructions for reporting. 4

Home office qualification tests

• Your use of the space must be exclusive and regular for business, and it must be your principal place of business (or a place where you meet customers) to qualify. Publication 334 sets out these tests. 5

Choose a calculation method

• Simplified method: $5 per square foot up to 300 square feet; minimal substantiation, no depreciation, and no carryover of excess. 1
• Actual-expense method: Allocate eligible home costs (mortgage interest, rent, utilities, insurance, repairs, depreciation) between business and personal use; the deduction is subject to a gross income limitation with potential carryover of disallowed amounts. 6

Gross income limitation and SALT coordination

• Regardless of method, your home office deduction cannot exceed business income from that activity; under the regular method, disallowed amounts may carry forward. 6
• When using actual expenses, state and local tax limits interact with the home office calculation (Publication 587 provides the worksheet and coordination with the $10,000 SALT cap). 7

Employees: what’s deductible and where to report

Unreimbursed employee expenses

• Only certain employees can deduct unreimbursed job expenses currently: Armed Forces reservists, qualified performing artists, fee-basis state or local officials, and employees with impairment-related work expenses. Those who qualify generally file Form 2106 and carry to Schedule 1. 2
• Form 2106 instructions require records for travel, meals, lodging, gifts, and listed property, including receipts and contemporaneous logs. 8

Employee home office

• An employee home office is deductible only if used exclusively and regularly and is the employee’s principal place of business or a place to meet clients; and the use is for the convenience of the employer. 9
• If allowed, the amounts were historically itemized on Schedule A; currently, most employees cannot claim them unless within the narrow excepted categories noted above. 9

Accountable plan reimbursements (preferred for employees)

• If your employer reimburses expenses under an accountable plan (timely substantiation, return of excess), reimbursements are not wages; if not, they are taxable wages. Substantiation must be specific, not vague, with timely records. 10

Substantiation rules that apply to everyone

Section 274(d) strict substantiation

• Travel away from home, meals, lodging, entertainment (where allowed), and listed property require strict substantiation: amount, time, place, business purpose, and in some cases business relationship. Keep an expense log made at or near the time and supporting receipts. 11
• Regulations also outline documentation standards and the need for contemporaneous records; without them, deductions may be denied or reimbursements treated as wages. 10

Travel, commuting, and remote work nuances

Commuting vs business mileage

• Commuting between home and a regular work location is nondeductible. Section 274(l) disallows employer deductions for providing commuting (with limited exceptions) and reflects the general nondeductibility of commuting for individuals. 12
• If your home office qualifies as your principal place of business, travel from home to another work location in the same trade or business can be deductible business transportation; otherwise, trips from home to a regular post of duty are commuting and nondeductible. 13

Special notes for independent contractors and reimbursements

Reimbursements from clients

• If you are an independent contractor and a client reimburses your travel, meals, gifts, or listed property costs, strict substantiation rules apply; otherwise, amounts are income and you deduct expenses on Schedule C subject to section 274(d). 14

Practical filing steps

For self-employed remote workers

• Use Schedule C to report income and expenses; attach Form 8829 if using actual home office costs. If using the simplified method, follow Schedule C instructions for reporting the safe-harbor amount. 4
• To qualify the home office, ensure exclusive and regular use, and determine that it is your principal place of business or meeting place for clients. 5
• Decide between simplified ($5/sq ft up to 300 sq ft) or actual-expense method; remember the gross income limitation, carryover rules for the actual method, and no carryover for the simplified method. 6

For employees working remotely

• Seek accountable plan reimbursement from your employer; provide timely, detailed substantiation so reimbursements are non-taxable. 10
• If you are in one of the limited categories that may deduct unreimbursed expenses, use Form 2106 with the required 274(d) records; carry to Schedule 1. 8

Common pitfalls to avoid

Mixed-use spaces

• Failing the exclusive-use test (for example, using the same room for personal and business) will disqualify the home office deduction except for daycare and certain storage exceptions. 15

Inadequate records

• Missing contemporaneous logs for travel, meals, or listed property can result in denial of deductions or taxable reimbursements under section 274(d) and related regulations. 11

If you tell me whether you’re an employee or self-employed, plus the size of your office, your total home costs, and whether you meet exclusive/principal-place-of-business tests, I can walk you line-by-line through Schedule C, Form 8829, or Form 2106.

Sources

1 – IRS – Publication 583 Starting a Business and Keeping Records 📄 Summarize
2 – IRS – Publication 529 Miscellaneous Deductions 📄 Summarize
3 – IRC § 162(a) 📄 Summarize
4 – IRS.gov – 2024 Instructions for Schedule C (2024) 📄 Summarize
5 – IRS – Publication 334 Tax Guide for Small Business (For Individuals Who Use Schedule C) 📄 Summarize
6 – IRS.gov Tax Topics 📄 Summarize
7 – IRS – Publication 587 Business Use of Your Home (Including Use by Daycare Providers) 📄 Summarize
8 – IRS.gov – Instructions for Form 2106 (2024) 📄 Summarize
9 – CCA 200121070 📄 Summarize
10 – CCA 200745018 📄 Summarize
11 – PLR 200433010 📄 Summarize
12 – IRC § 274(l) 📄 Summarize
13 – CCA 199948019 📄 Summarize
14 – Treasury Regulation 1.274-5T 📄 Summarize
15 – IRS Newsroom – IR-2022-100 📄 Summarize

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