As many of us have transitioned (fully or partially) to working from home, we have spent some cold hard cash making our living space more conducive for working. From supplies to a new desk or a faster internet connection, your expenses may be adding up.
You may be wondering if you are allowed to use these expenses as deductions or even claim a home office deduction for 2020. Unfortunately, it’s unlikely. Per federal law, employees who receive a paycheck or a W-2 exclusively from an employer do not qualify to take these deductions.
However, if you live in Alabama, Arkansas, California, Hawaii, Minnesota, New York, or Pennsylvania, you can deduct unreimbursed employee business expenses on your state income tax return.
If you live elsewhere, it wouldn’t hurt to ask your employer to reimburse you for some of the expenses incurred. In some ways this is preferred. Why? A tax deduction only allows you to reduce your tax bill by a fraction of what you spent whereas a reimbursement gets that same amount of money right back into your pocket.
Who is Eligible?
So who is eligible to deduct home office expenses? Typically those individuals who already have been prior to 2020—the self-employed who run businesses primarily out of their own home. Of course, there are guidelines and stipulations to abide by and certain qualifications that must be met for these individuals, as well. A new mattress for your master bedroom, for example, won’t count as a deduction even if you spend hours working on your laptop from atop its cushiony pillowtop.
In order to qualify for the home office deduction, two qualifications must be met: (1) the home must be the primary or exclusive place of business and (2) a portion of the home must be dedicated exclusively to conducting that business. For example, if your “office” is in the den and doubles as a living space or is in the bedroom where you sleep, you cannot claim the home office deduction. But those who meet these requirements are eligible for deductions related to the business’s portions of the costs of estate taxes, mortgage interest, utilities, and insurance. If your office takes up 20% of the square footage of your home, you can deduct 20% of the cost of the expenses in the above list.
If you are a business owner in need of some guidance navigating your tax strategy in the era of COVID-19, we encourage you to reach out to learn more about our comprehensive planning services. Schedule a call with one of our advisors today. We can answer some of your most pressing financial questions and get to know you on a more personal level.