Top tax deductions for work-for-home employees

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Published on 09/09/2020

The global pandemic has upended everyone’s daily lives across the globe. No matter your occupation, the novel coronavirus, better known as COVID-19, has modified all our working routines in one way or another. Whether it means wearing a mask every day at work or staying home, ditching their daily commutes, and working from your study table, work-life certainly feels and appears different in the ongoing year. 

If you’re one of those people who have been toiling hard from their respective homes in 2020, you must be wondering, if you can deduct your work-from-home expenses incurred due to coronavirus. In this post, we answer some burning questions for you.

1. Can an employee deduct their work-from-home expenses if they are required to work from home due to coronavirus?

There have been many instances of people working from their respective houses due to coronavirus. However, the workers can no longer take federal tax deductions for unreimbursed expenditures, including work-from-home expenses under the tax reform. Generally speaking, only self-employed workers working from home can avail such deductions, for instance, bloggers, freelancers, etc.

2. Can anything be done to get exemptions of some work from home related out of pocket expenses, if they cannot be deducted as an employee?

Although if one is an employee, one cannot take federal tax deductions for work-from-home expenses. However, some states have enacted the laws that require employers to reimburse employees for necessary business expenses or allow them to deduct unreimbursed employee expenses on their state tax returns. For this, one can always check with their state departments of revenue. 

3. What can work-from-home expenses be counted by a self-employed individual?

Self-employed business owners may deduct up to $1,040,000 ($1,020,000 in 2019) for business equipment like Printers, Computers, and office furniture,. The amount that one can subtract is only limited to the number of business operation profits. One can also deduct supplies that one buys for his/her customers ranging from paper, printer ink, or supplies, and they can take the home office deduction, which is discussed below.

4. What is meant by home office deduction, and how does it function?

Home office deduction would mean all the expenses like property taxes, home mortgage interest or rent, house insurance, and depreciation used directly and exclusively for the business. 

The home office deduction is by far the highest work-from-home costs that a self-employed person can incur since the home is the office workplace too.

There is also a simplified method that is up to $1,500 (up to 300 square feet x $5 per square foot) that allows one to have a flat deduction without taking personal home expenses into account. However, the simplified method allows for less record-keeping; the original home office deduction can give a more significant deduction. If your home office takes up the maximum 300 square feet of one’s home, for instance, the maximum amount that one can deduct is $1,500 under the simplified home office deduction. Still, if one uses up to 300 square feet of one’s 2,000 square foot home and one’s home expenses amount to $40,000, then, one’s deduction will amount to $6,000 (300/2000 sq ft x 40,000).

5. Can one be refunded for company expenses if their employer has an accountable plan?

Yes, an accountable plan is the one set up by employers to reimburse employees for business-related expenditure. As long as the plan follows IRS rules, employees can be compensated for the necessary company-related expense. 

6. What is the eligibility to avail the home office deduction, if the individual is self-employed but does not have an office in their home and instead work from their kitchen table?

No, one ought to have a dedicated arena to conduct one’s business. One is not entitled to the home office deduction for running a business in the same arena where one’s kith and kin eats, and children do their homework. One’s home office must be one’s primary place of business; a place wherein the usual course of business one meets patients, customers, or clients; which is not connected with the living arena and used in linkage with the commercial purpose. 

All in all, it is very important the nitty-gritties and fundamentals of the work from home model from a tax perspective. This is the new normal and the deductions available can be helpful for the people working from home.

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