Tax season is coming up – and if you do this, you might go to jail

It’s difficult to find someone whose favorite day of the year is April 15th – even those saucy Aries birthdays are soured with the ever-present gloom of Tax Day. Though extensions are quite the norm these days, March is still the month where every H&R Block advisor and TurboTax aficionado begins to feel the heat of the IRS’ impending deadlines. And these days, everyone is working from home, so finally, everyone thinks they’re entitled to the all-sacred home-office write-off.

Unfortunately, when it comes to taxes, if it feels too good to be true, it is. And you could get yourself in a lot of hot water if you think it’s as easy as writing off whatever loosely applies as a “home office”.

What is the home office write-off anyway?

Historically, there are two forms of deductions: the simple deduction, starting in January 2013, and the regular deduction, from 2012 and earlier. The regular deductions, according to the IRS, were “based on the percentage of your home devoted to business use.” That means if your home office was 500 square feet of a 2,000 square-foot house, your deduction would be 25%.

The positive part of a regular deduction is, as NerdWallet reports, you can “deduct mortgage interest, taxes, maintenance and repairs, insurance, utilities and other expenses” from your home in entirety, according to the percentage that your home office makes up.

The benevolent IRS, more than likely realizing that most of us are not percentage enthusiasts, added the reporting method of a simple deduction in 2013. For instance, if your home office is less than 300 square feet (for instance, if you’re just counting your desk, or if you work in a walk-in closet), your deduction functions on a square-foot basis. Usually, NerdWallet notes, “$5 per square foot of your home” can be deducted “up to a maximum of $1.5k for a 300-square-foot space.”

Sounds amazing! How do I get it?

The short answer is that, for the most part, you don’t. TurboTax specifies that “if you’re an employee working remotely rather than an employer or business owner, you, unfortunately, don’t qualify for the home office tax deduction;” this is due to the 2018 Tax Cuts and Jobs Act.

Jobs that would qualify for a deduction are a CEO, someone with their own private practice or firm, like a psychologist or accountant, daycare operator, or aesthetician/massage therapist working from home. For those still unclear, page four of this long, jargon-filled IRS document has a palatable chart to determine if you qualify.

That being said, a home office is available to some as a state deduction, so if you live in states like New York, Pennsylvania, California or Arkansas, you might get a deduction for unreimbursed employee expenses up to a certain amount. Additionally, if it’s a condition of your employment to maintain your home office, or necessary for the business to function, you could be eligible for some sort of deduction.

Ultimately, if you qualify due to your employment, you also have to qualify by the use of your home office.

According to the IRS, a home office worth deducting taxes from is supposed to have two attributes; its’ “regular and exclusive use” is for work, and that it’s your “principal place of business.” This means that if you see clients in your home, but you have another location that serves your business, like a warehouse, you could write off part of your home and file another deduction for your warehouse.

Oh, but I could get around that…

Sure, buddy, you could start looking for ways to skirt the rules. But not even Jersey Shore star Mike “The Situation” Sorrentino could avoid jail for tax evasion. Though the IRS has stated that they won’t open new audits during the pandemic, don’t take that as an opportunity to think you can game the system, as open audits continue to be checked in on, and the IRS could make up for their lost time with a flood of audits when audits reopen.

Usually, a method called the Information Returns Process System is used to catch tax evaders. Your W-2s or W-9s are cross-matched with your 1099s and Schedule K-1s, and if any discrepancies are reported, you’ll get an audit. A report from the Treasury Department also states that the IRS has recently cracked down on padded deductions,

It’s also worth noting that the consequences for fraud can be even steeper than the crime. You cannot go to jail for making an honest mistake on your taxes, as can be proven in an audit appeal with a well-learned lawyer on your side. And if you’re determined to have padded your write-offs, even just a little, Forbes reports that you could be liable for “20% of the disallowed amount”, or up to $5k if the IRS determines you’ve filed a “frivolous tax return”.

However, if they’re able to prove that you had malintent, or have been doing this for years unchecked, a criminal suit could be filed against you.

The average time you could serve in jail if you try to pull a fast one on the IRS is 3-5 years – you’ll also be fined up to $500k. Also, the IRS demands repayment for the taxes you’ve withheld, with a 75% underpayment fee. In this writer’s humble opinion, it’s just not worth the few hundred dollars you’d save to write off something you don’t apply for.