Working From Home – Can I Take a Tax Deduction?

by Tracey Hrica, EA Jun 11, 2020 | Share

Have you been working at home during the COVID-19 shutdown, and wondering if it will affect your taxes? Will you qualify for a home office deduction? Many businesses have had to reevaluate how they run in response to this pandemic. People have been forced to work remotely, some for the first time. Covid-19 has changed the way we think about remote work – your home office may be the trend of the future. So, let’s talk about the home office deduction. The rules are dependent on what kind of worker you are.

Employees who receive payroll checks

Unfortunately, the vast number of W-2 employees – those who receive paychecks – working from their living room,  will not qualify for this deduction.  That means there are no deductions for your new printer, router, paper, and other supplies you have needed to work from home.

What if you aren’t working from your living room? Let’s say you turned a spare bedroom into a home office space.  You should now qualify for the home office deduction, right? Sorry but – WRONG.  Unless you are self-employed, you are not entitled to these deductions.

Many of you are thinking, “this can’t be right,” and prior to the rules that were changed under the 2017 Tax Cuts and Jobs Act, you would be correct.  Unreimbursed work-related expenses in excess of 2% of adjusted gross income could be deducted. Also, employees who worked remotely for the benefit of the employer could claim deductions for their home offices.

But, no longer. Your only course now is to seek reimbursement from your employer, who can, in turn, claim a deduction for the reimbursements. However, keep in mind there are no rules requiring a company to reimburse their employees.

Self-Employed Individuals

Many self-employed workers already deduct costs for home offices. Some self-employed people who work in offices that are shut down because of the coronavirus lockdown may want to explore deducting costs of working at home. Home office deductions can get complicated, so be sure to consult with a tax professional. Here’s why:

The Simplified Method

This one is pretty easy. You simply calculate the square footage of the area in your home that you are using as an office and multiply it by $5 to determine the deduction. However, there is a cap when using this method – 300 square feet, which is equal to $1500.

The Regular Method

Regardless of the method chosen, remember, there are two basic requirements for your home to qualify as a deduction:

  1. Regular and exclusive use: You must regularly use part of your home exclusively for conducting business
  2. Principal place of your business: The business part of your home must be either your principal place of business, the place where you meet or deal with customers or a separate structure that you use in connection with your trade or business.

The regular method may result in a larger deduction, especially if you are buying equipment(direct expense) such as computers, printers, etc. For this method, you add up your direct and indirect expenses. Your indirect expenses are computed based on the percentage of your home, which is your home office. Indirect expenses include:

  1. Gas
  2. Electricity
  3. Real Estate Taxes
  4. Trash Removal
  5. Homeowners Insurance
  6. Deductible Mortgage Interest
  7. Repairs
  8. Depreciation
  9. Any other cost involved in keeping your home running.

For example, if your office’s square footage is 10% of your entire home, you can deduct 10% of your electric bill.

In Conclusion

These should be your key takeaways:

  1. Regular employees are ineligible for the deduction, even if they are now forced to work from home during the shutdown resulting from the coronavirus pandemic.
  2. A home office space isn’t a home office just because you do work there. The living room couch and kitchen table do not count.
  3. Keep detailed and thorough records. Take account of every receipt, whether its for office supplies or your monthly utility bill.

The changes COVID-19 has made encompass almost every part of our lives. Don’t forget to consult with us, or your current accountant or tax preparer about the financial impacts you are dealing with.

About the Author

Tracey Hrica, EA

Tracey Hrica joined the firm in 1995. She is an Enrolled Agent(EA), which enables her to prepare personal and business tax returns and represent clients before the IRS. Working closely with her clients, Tracey’s primary areas of concentration are new client set up and QuickBooks support. As a QuickBooks ProAdvisor, she works closely with clients who rely on QuickBooks for the day to day running of their business. Tracey has expertise in both QuickBooks Desktop and QuickBooks Online.

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