The 2017 tax reform law ended the ability for most taxpayers to deduct expenses for working from home just in time for millions more people to begin working from in response to the Covid pandemic. Nowadays only a few select groups of salaried home-based workers can still deduct relevant expenses. However, even if you’re not one of these, there are still a few possible ways for you to get tax deductions from your expense for working from home. A financial advisor can help you find every deduction and credit you are entitled to.
Prior to 2017, salaried employees could deduct expenses required to perform their duties from home. Reasonable expenses might include travel and entertainment, office furniture, computers and other tools of whatever trade they plied.
Today, of course, many more people are working from home and, as a result, employee outlays for things like faster Internet connections, upgraded home networking gear, desks and the like are up. Travel and entertainment expenses are down, again as a result of pandemic-related travel decline. But home office expenses of whatever variety are no longer deductible except for a handful of exceptions.
Home-Based Worker Exceptions
The tax recognizes employees in five different groups as potentially eligible for at least some expenses required to work from home. They are:
- Performing artists may be qualified for these deductions if they have performed for at least two employers during the tax year, had adjusted gross income for $16,000 or less before deductions and incurred allowable expenses of at least 10% gross income from their artistic endeavors.
- U.S. military reservists of Army, Navy, Marines, Air Force, Coast Guard, National Guard or Public Health Service may also be able to deduct some qualifying expenses.
- State and local government officials, either elected or appointed, may get to take deductions for home-based work expenses if they are compensated at least in part on a fee basis.
- People with physical or mental disabilities that limit their ability to be employed can deduct expenses necessary for them to work from home, including attendant care.
- Teachers of grades kindergarten through 12 can deduct qualified expenses for books, supplies, computers, software, and other expenses required for working from home. This exception also applies to counselors, principals and aides.
How to Claim Work From Home Deductions
Tax deductions for expenses needed to work from home are only available to taxpayers who itemize their deductions. Also, work from home expenses can only be written off if they exceed 2% of adjustable gross income. As is the case with most tax matters, tax payers may be required to show receipts and other documentation of deductible expenses. Deductible expenses are reported on Form 2106.
This IRS form is then attached to the main 1040 tax return and the work from home expenses are reported on Schedule A, the schedule for itemized deductions.
Work from home expenses are still deductible for self-employed people. So if a worker is classified as an independent contractor rather than a regular employee, the above restrictions don’t apply.
Self-employed independent contractors also get a number of deductions that are not available to employees, including those among the exceptions. Those can include outlays for utilities, insurance and depreciation of assets including computers and real estate.
Determining whether a worker is an employee or independent contractor can be complicated and the IRS makes the determination on a case-by-case basis. However, generally speaking, if a worker receives a W-2 statement showing wages paid and taxes withheld, he or she is an employee. If the worker instead gets a 1099-Misc reporting earnings, he or she is an independent contractor and may be able to claim work from home expenses.
If a home-based worker is a regular employee and not one of the excepted types, one way to get some help with the costs of working from home is to get the employer to cover the costs. The employer can purchase needed items and provide them to the employee, or the employee can purchase them and get reimbursed. The employer will then be able to deduct the reimbursements as business expenses.
As part of their pandemic responses, some states are requiring employers to reimburse employees for expenses if the employers are requiring employees to work from home. In order to keep employees form having to report reimbursements as taxable income, employers may n need to set up specific policies describing which expenses are subject to reimbursement.
Expenses for working from home are not deductible for most employees since the 2017 tax reform law. For people filing for tax years before 2018 work from home deductions can be used. Also, the current limitation on deductions is set to expire in 2025, so after that tax year expenses for working from home will again be deductible for many employees. However, some groups of employees may still be able to take these deductions. And self-employed independent contractors still can deduct expenses for home offices. Employers may be able to reimburse employees for necessary expenses and then deduct the outlays as business costs.
Tips on Taxes
- Deducting expenses for working from home can get complicated and an experienced financial advisor can be a great help. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- One way to get the jump on paying taxes or just checking that you’re paying the right amount in federal taxes is to use a tax calculator. SmartAsset’s federal income tax calculator is free and easy to use.
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