Your Government May Allow You to Deduct the Cost of Working From Home During a Pandemic
With jobs across the country closed abruptly due to the coronavirus outbreak, many people had to get used to working from home quickly. At best, your employer has volunteered to pay for the costs of a faster internet connection or a desk chair for your temporary home office.
But it’s safe to say that many of the costs of working from home – either for a short period this spring or until further notice – have become your responsibility.
In the olden days (okay, before 2018), if you filed deductions on your federal tax return, you could deduct expenses related to your job, provided the expenses were not reimbursed by your employer.
But the Tax Cuts and Jobs Act of 2017 dramatically increased the standard deduction and removed some of the options for deducting expenses from your individual tax return. The costs of moving to work have been canceled, as has the ability to deduct costs associated with your work. And that includes any costs of working from home.
“The only way to get a home office deduction, or any other deduction for expenses incurred while working from home, is if you are self-employed,” explained Eric Bronnenkant, head of tax office at Betterment . “If you are not self-employed and are now working from home due to COVID-19, and you find that you need, for example, a more expensive high-speed Internet connection, or a new camera, or a new printer, unfortunately you cannot get a tax deduction for it. “
According to him, the abolition of the deduction of unreimbursed expenses will last until at least 2025.
But you can still get a tax deduction for the costs of setting up a home office as long as you are a W-2 employee and your employer does not interfere (freelancers and third-party marketers, you can still deduct your home office costs on your Schedule C.)
You just need to do it with your state taxes, not your federal tax return.
“Some states still allow this deduction,” explained Mark Jager , director of tax development at TaxAct . This list includes California, New York , Minnesota , Arkansas, and Alabama .
To check your state rule, try searching for “state name + deduction from household chores” or “state name + deducted by line”. You can also go directly to your state government website and search for “detailed deductions” there.
For example, California allows you to deduct expenses related to your work if those unreimbursed expenses exceed 2% of your federal adjusted gross income. So, if your AGI is $ 50,000, you will have to spend at least $ 1,000 of your own money to set up a new home office to be eligible to deduct it from your state tax return. (You may recall that the rate is 2% of your federal income if you deducted labor costs prior to 2018.)
If you had to buy, say, a desk chair, an external monitor, a printer, and possibly a telephone headset in order to be able to do your work from home every day, you might be reaching that threshold. Or maybe you had to go to a conference or training program that has been translated to the online version. If you paid for this education yourself, you could deduct the cost of the lesson or conference plus any other items you bought to work from home.
Of course, if you plan to use this deduction, it means that you are going to list it by line item instead of taking the standard deduction for your state. But if you are using an online tax filing program, this system will be updated to match your state’s tax laws and will likely walk you through the math to determine which deduction method works best for you.
Keep in mind that if you can deduct your work from home expenses due to the pandemic, you will have to wait and do so when you file your 2020 tax return for your state. So for now, all you have to worry about is getting organized.
Jaeger recommends taking pictures of the receipts with your phone and saving them in a folder on your computer for reference during tax time. “There are so many little things that can add up over time,” he said. “So if you organize and save [these photos], you can easily come back to it” at tax time.
Some of these costs may eventually be reimbursed by your company, or you can talk to your boss again to justify the need for full or partial coverage. But good accounting still helps. “The more data you get from talking to your boss, the better,” Jager said.
And tax time will come, if you still need those receipts, you won’t have to rack your brains to get organized.
To learn more about optimizing your workspace, watch the video below: