Sheryl Andrews, Finance Manager, Rooster Strategic Solutions
Since the first peak of the pandemic in early May, more than 100 million people in the U.S. reported working from home. And most of them won’t return to the office anytime soon; a survey of corporate leaders found that more than 80 percent of companies will allow remote workers to contribute from home at least part-time moving forward into 2021.
If you’re a member of this new work-from-home army, it’s natural to wonder if Uncle Sam might help you cover some of your expenses: internet costs, a new desk or ergonomic chair, Zoom camera, office supplies you purchased, etc. The short answer is maybe – but it depends on what kind of employee you are.
If you’re a full-time employee, probably not. Prior to 2018, remote workers who received a W2 from their companies were still able to include expenses from eligible home office setups. Unfortunately, this was one of several itemized deductions that were eliminated as part of the Tax Cuts and Jobs Act. There’s still a chance you could qualify for some tax relief if you do some freelancing or gig work. See below.
If you’re self-employed, probably – if you meet certain conditions. The most important criteria to meet is using the area for your work “regularly and exclusively” for business. If you have a dedicated room where you set up an office and use it only to work, you’re golden. But you could also put a card table in a corner of an unfinished basement, and as long as you’re only using that area to work, it would still qualify. Setting up a laptop on the kitchen table where your family eats would not.
Meeting the “regular and exclusive” condition allows you write a portion or all of a large number of expenses, including business phone and internet expenses, hardware and software costs, office furniture, and even a portion of your home’s heating, electricity, insurance, and mortgage expenses. Better yet, there are two different methods for taking these deductions:
- The simplified option. As the name suggests, it’s easier to file but may result in a smaller tax break. Instead of forcing you to document all your expenses, you can deduct $5 per square foot of your home office, up to 300 square feet, for a total deduction of no more than $1500. As long as your office setup meets the “regular and exclusive” conditions, you can take this tax break without keeping specific records.
- The standard option. In this method, you record and deduct your actual expenses and get a break for the area of your home or apartment that’s used for business. For example, if you have a 10×10 space that you’ve dedicated for business in a 2,000-square-foot home, you can deduct 5 percent of the cost of your rent or mortgage interest, homeowner’s insurance, and utilities, as well as portion of property taxes and home You can deduct 100 percent of the cost of office improvements, including any repair work made to your office space. For a list of eligible expenses, see IRS Publication 587, Business Use of Your Home.Keep receipts of these expenses in your tax files.
If you have a side-hustle, maybe. Even if you’re a W2 employee at a company, you can still receive deductions for business expenses you incur if you do freelance work on the side. You’d still have to meet the “regular and exclusive” threshold, and there are specific guidelines and limitations depending on how your extracurricular business is set up, for example, as a sole proprietor or an LLC taxed as an S Corp. It’s best to check with a tax pro on this before you proceed to see what if any tax savings you might realize and what documentation you’d need to qualify.