Your company sent everyone home when the pandemic began last March and now that is your workplace so you’re probably wondering if that means you’re eligible for some serious tax breaks when you file next April 15.
Or maybe the COVID-19 crisis made your job disappear altogether, so you entered the gig economy and created a home office to do your business. There’s gotta be deductions for that, right?
You had to buy supplies, office furniture, upgrade the internet and maybe even add a business phone. Being home all day meant way more electricity, air-conditioning, or heating oil and that costs money. That’s tax break city, right?
Well, hold on a minute here. There is no doubt a lot of people think working from home means write offs galore when they file 2020 taxes, but here is a warning: Don’t start itemizing just yet.
The truth is most people who had to work from home because of the COVID-19 pandemic will not get a tax break.
Huh? Tax breaks and working from home go hand-in-hand, right?
Not for everyone.
Unreimbursed itemized tax deductions for employees working at home ended with the 2017 tax cut, with some minor and specific exceptions. That means that employees who run up expenses their employer doesn’t reimburse can’t claim them on their taxes the way they used to.
The pandemic didn’t change that.
The situation is more complicated if you’re self-employed. You can deduct a home office and a large variety of other expenses related to working from home, but there are strict rules and you should be careful.
Can I Claim Working from Home on My Taxes?
If you’re an employee working from home because of COVID-19, or for any other reason, you can’t deduct your expenses. You are considered an “employee” if someone pays you for your work and deducts taxes, Medicare and Social Security from your paycheck.
Just a few years ago, employees could deduct a wide range of work-related expenses like mileage, home office supplies, union dues, uniforms and more. The Tax Cuts and Jobs Act, passed by Congress and signed by President Trump in December 2017, eliminated deductions for unreimbursed employee expenses.
“That means there’s no special write-offs for you, even if you’ve invested in a sweet little home office set-up,” said Jim Pendergast, senior vice president of AltLINE Sobanco, a division of The Southern Banking Co. “The IRS tends to qualify any of these remote-employee office investments as ‘miscellaneous itemized deductions,’ which don’t net you any deductions until 2025, thanks to changes from the Tax Cut and Jobs Act.”
Taxpayers could also deduct their mortgage interest, state and local taxes, charitable donations and more before the 2017 tax bill. Expenses, both work and home-related, just had to add up to more than 2% of the tax return’s adjusted gross income. However, since 2018, itemized deductions can only be taken if they exceed the standardized deduction.
For those filing in 2021, the standard deduction is $12,400 for single filers; $18,400 for head-of-household filers; and $24,800 for married people filing jointly. The TCJA remains in effect through 2025, when Congress can renew it or scrap it.
Things aren’t as dire for those who are self-employed. Self-employed workers, who are considered business owners by the IRS, can deduct for their home office, mileage, office furniture, supplies, advertising and marketing costs and even meals.
Sam Otto, owner of Uncle Sam’s Accounting, in Madison, Wis., has experienced both worlds during the pandemic. At the beginning of the year, he was working for an accounting firm. He and his fellow employees were asked to work from home beginning in March.
“Because I was an employee for that firm, I could not claim any deduction [for 2020 taxes] in relation to working from home,” Otto said. “However, this summer I left the firm and have now started my own tax practice, which I operate from my home. Now that I am self-employed, any expenses I get in relation to working from home are tax deductible.”
Can I Deduct My Home Office from My Taxes?
If you’re working for someone else as an employee, you can’t deduct your home office from your taxes. If you’re self-employed, you can.
In fact, the home office deduction is the biggest tax option for self-employed workers, said Anna Barker, founder of LogicalDollar, and an attorney who advises clients on tax matters.
“If a portion of your home is used exclusively and regularly for business purposes, you may be able to claim the home office tax deduction,” Barker said.
But it’s not just a matter of setting up the laptop on the kitchen counter and calling it an office, she and other tax experts stress.
“Anyone who’s a full-time freelancer, independent contractor, or runs a business registered at their home address can claim home office deductions,” Pendergast said. “These folks get to claim certain deductions because they use a portion of their home as their exclusive ‘principle’ place of business.”
The key is “exclusive,” Pendergast said. “A guest bedroom doubling as a freelancer’s office doesn’t qualify, because it’s not a dedicated, exclusive area for business. Neither does a photography studio in your den. The space and its items must be exclusively for professional use.”
There are two ways for those who are self-employed to deduct their home office, “regular” and “simplified.”
Home Office Deduction Simplified Method
With the simplified method, a self-employed worker can deduct $5 per square foot of home used for business. If the home office is 200 square feet, for example, the deduction would be $1,000. The maximum is 300 square feet, with a $1,500 deduction.
“If you choose to use this method, it’s a good idea to enlarge your home office space up to the limit to get the full deduction,” Barker said.
Regular Method for Deducting Home Office
With the regular method, a portion of expenses is deducted, based on the area in square feet of the home office. If the home office is 10% of the square footage of the house, the taxpayer can claim 10% of home-related expenses, including things like property taxes, mortgage interest and utilities.
“While this may, in some cases, allow you to claim a larger deduction than the simplified method, it’s important to maintain detailed records of all of these expenses to justify what you’re claiming,” Barker said
If you spend more for expenses than the $1,500 simplified cap, then you may want to use the regular method. But the math can get complicated, because expenses like utilities have to be pro-rated, with only a portion of the total costs counting.
If you use the regular method, you may want to hire an accountant to prepare your taxes.
Do Teachers Get a Tax Deduction for Working from Home?
Teachers come under the same tax rules as all other employed people, so they cannot deduct their expenses for working at home. The do get one minor deduction for expenses, whether they’re working at home because of COVID-19 or not.
Under the 2017 tax law, teachers can deduct up to $250 for unreimbursed expenses. If two qualified educators are married and file a joint return, they can claim $500.
Educators qualify if:
- They teach any grade from kindergarten through 12th grade.
- Are a teacher, instructor, counselor, principal or classroom aide.
- Work at least 900 hours during the school year.
- Work in a school that provides elementary or secondary education.
Qualified expenses include professional development courses, books, supplies, computer equipment, related software and services, supplementary materials and more.
In September, a group of senators asked U.S. Treasury Secretary Steve Mnuchin to make personal protective equipment an eligible expense. In October, members of the House Ways and Means Committee added a provision to the House relief bill that more extensively allows teachers to deduct cleaning supplies and PPE. But with the relief package stalled in Congress, nothing has happened with either of those changes.
What You Can Write off on Your Taxes If You Work from Home
Again, if you are employed by someone else, in most cases there’s nothing related to working from home that you can write off on your 2020 taxes.
You can put in for a limited number of unreimbursed expenses if you’re an armed forces reservist, qualified performing artist, fee-basis state or local government official, or an employee with impairment-related work expenses.
If you’re self-employed, the possibilities are many, as long as they’re related to work.
It’s not all one big money ride, though. Self-employed workers must pay a federal 15.30% self-employment tax, which goes to Social Security and Medicare. If you work for someone else, these are partially paid by your employer. The good news for the self-employed is, half of that tax is deductible from your net income.
The big self-employed deduction is the home office deduction. Aside from that, the Tax Cuts and Jobs Act allows 100% depreciation on large purchases, like a new computer or new furniture that’s used exclusively for the home office.
Mileage is another deduction no longer available to the employed, but still available for self-employed.
“Say that you had to visit a client and you drive directly from your house. Normally, that would be considered ‘commuting’ mileage and is not deductible,” Otto said. “However, if your home is your workplace and you drive from there to visit a client, you are considered to be driving from one work area to another and therefore the mileage is work-related and deductible.”
The IRS lists what the per-mile amount is, and those who plan to deduct mileage should keep track of the miles and what each trip was for.
Things that are used for daily living as well as working — internet service, cellphone, landline telephone, rent (but not mortgage, only mortgage interest), utilities and more — can be deducted, but not at 100%. They must be pro-rated for the amount related to work.
Meals are deductible if they’re work-related. This doesn’t mean you can deduct a pizza because you’re working late and don’t feel like cooking, but if you meet a client or have a work meeting at a restaurant or coffee shop, the cost is 50% deductible. Save the receipt and be sure to jot down what the meeting was about, in case the IRS asks someday.
Other common self-employed deductions are:
- Interest on business loans.
- Health insurance.
- Business insurance.
- Publications and subscriptions.
- Property taxes.
- Retirement funds contributions.
Has COVID-19 Changed Anything About Filing Taxes in 2021?
There have been no special federal tax breaks related to working from home because of the COVID-19 pandemic, either for those employed by someone else or the self-employed.
No work-at-home deduction is being discussed as part of the relief bill that’s stalled in Congress.
“It is possible that Congress could pass legislation allowing this deduction,” said Beth Logan, a federally licensed tax professional with Kozlog Entprises LLC. “At this time, this appears highly unlikely.”
The only federal tax change related to the COVID-19 pandemic that will put more money in a working person’s pocket is to charitable deductions, part of the CARES Act and aimed at prompting people to help charities out during the pandemic. Up to $300 in cash contributions to charity made during 2020 can be deducted for those who take the standard deduction. Those who itemize deductions and donated a lot to charity can deduct cash contributions of up to 100% of their adjusted gross income, up from 60%.
Most changes are to protect taxpayers from paying more than they should, not to give those working at home tax breaks.
For instance, Maine, Georgia, Illinois and several other states are making sure that state residents forced to work from home who normally work out of state won’t be taxed on their income by two states.
It’s a good idea to check your state department of revenue website to see if there are any changes that apply to you, or hire a tax professional to navigate the complicated ins and outs of filing taxes if you are self-employed.