With so many people setting up home offices in spare rooms, basements and kitchen tables due to the COVID-19 pandemic, many are wondering if they can take the home office tax deduction on their 2020 tax return.
Unfortunately, the answer is more than likely, no. And, if you have a full-time employer, the answer is definitely no.
According to the IRS, “employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deductions, even if they are currently working from home.”
Prior to 2017 and the Tax Cuts and Jobs Act, unreimbursed work expenses could be claimed under “miscellaneous” deductions. However, the new tax law eliminated that.
While that may be disappointing to learn, keep in mind that even when that deduction was allowed at the federal level, those expenses had to exceed 2 percent of your adjusted gross income, tax experts said. Besides, you could only deduct “miscellaneous” expenses that exceeded that 2 percent, anyway.
Certain states do let residents deduct unreimbursed employee business expenses on their state returns. If you live in Alabama, Arkansas, California, Hawaii, Minnesota, New York or Pennsylvania you can claim those costs, but, financial advisers say, be sure to check your state’s regulations, as they vary from state to state.
Whether you’ve invested in an office chair, a desk, supplies, or an upgrade to your phone or internet connection, it is worth going directly to your employer and asking to be reimbursed for what you’ve spent, suggest some tax experts. Even if you are able to claim some expenses, you’re likely to only reduce your tax bill by a small part of what you spent, said Susan Allen, senior manager for Tax Practice & Ethics at the American Institute of CPAs, in a CNN report.
Some studies indicate less than 38 percent of businesses currently say they are supporting at-home workers with reimbursements and stipends.
More likely to qualify for the home office deduction are those who are self-employed and run their businesses from their homes. Those who are freelancers, independent contractors and have a designated place in their house where they work can typically claim the deduction.
The IRS sets a variety of regulations to qualify for the deduction, including only deducting expenses that apply solely to the section of your house where you work exclusively on your business.
For more detailed information, talk with your tax advisor at Diamond & Associates CPAs or visit the IRS website: www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction.