Remote work: can home office expenses be deducted from taxes?

If you've worked from home most of this year, you've probably spent extra money trying to make your living space more workable, suggests CNN.

Photo: Shutterstock

Maybe you bought some accessories, a new table or chair, or just pay more for a better internet connection.

If so, you might be wondering if you are allowed to use a tax deduction for these expenses on your 2020 federal tax return.

The short answer is: probably not.

If you work for someone full time, you're out of luck.

“Employees who receive wages or W-2s solely from an employer are not eligible for the deduction, even if they are currently working from home,” the IRS noted last month.

Previously, employees itemizing deductions on their federal income were allowed to include any unreimbursed work expenses as part of their “miscellaneous” deductions. But the 2017 tax reform eliminated that possibility, said Nathan Rigney, lead tax research analyst at H&R Block Tax Institute.

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But don't be too upset. To get the tax break, your "other" deductions had to exceed 2% of your adjusted gross income, and even then, you were only allowed to deduct the amount above that 2% threshold.

However, for employees living in Alabama, Arkansas, California, Hawaii, Minnesota, New York and Pennsylvania, "there is hope for the best," Rigney said.

These seven states allow their residents to deduct unreimbursed employee business expenses from state tax returns. Be sure to read the instructions for filing your tax return because each state may have different rules about how much unreimbursed expenses qualify.

"It's best, no matter where you live, to simply ask if your employer will reimburse you for home office expenses, because the tax deduction will only reduce your taxes on a portion of your expenses," said Susan Allen, senior manager of tax practice and ethics. American Institute of CPAs.

He may need to be persuaded a little. Currently, only 38% of employers say they provide financial support to remote workers in the form of compensation, bonuses or subsidies, according to consulting firm Mercer.

Who Can Get Home Office Tax Deduction This Year?

The people who are most likely to be eligible to claim the home office tax credit are those who are self-employed, meaning they run their own business from home or are independent contractors or freelancers performing tasks from home.

But it is important to comply with the following rules: you can only deduct expenses for that part of your home that is used exclusively and regularly for business, and your home should be your main place of business. And you cannot deduct the costs associated with what is used for both your job and your family life.

“You can’t just put a table in your kids’ playroom and take the deduction,” Allen said.

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It's the same with the beautiful new sofa that you bought for your living room, no matter how many hours you spend on it with your laptop.

More information from the IRS on deducting home office expenses - at this link, and the simplified calculation method is here.

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