If your company’s allowing you to work from home, that convenience may be costing you more than you think when it comes to your taxes.
That’s because wage employees who choose to work from home take on the full weight of their related expenses.
The 2017 Tax Cuts and Jobs Act eliminated unreimbursed itemized deductions for employees, and Congress never brought them back despite a surge in people working from home.
Among those who have a workplace outside of their home, 61% said they’re choosing not to go into their workplace, up from 36% near the start of the pandemic in 2020, according to the Pew Research Center last year.
Home office deductions now mostly apply to small business owners who are self-employed. If you do freelance work unrelated to your regular job at home, you might qualify. The rules are strict, though, and calculating your deductions can be complicated. Here’s a step-by-step guide for figuring out if you qualify for deductions and if so, what to consider in your calculations.
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Who qualifies for home office deductions?
Generally, if you receive a W-2 wages tax document, you’re not eligible unless you also have a side gig that you do from home.
If your home office is used exclusively and regularly for your self-employment, you may be able to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, homeowners’ insurance, and utilities.
“If you work on your dining table, you can’t deduct that because it’s not used exclusively for work,” said Therese Tipple, EP Wealth Advisors’ tax manager and financial planner. “But you could purchase a desk and have it in a corner of your house and if that’s used exclusively and regularly- for work, you can deduct that space.”
How can I deduct my home office space?
There are two ways to take a deduction for your home office space:
- Simplified: You can deduct $5 per square foot, up to $1,500 or 300 square feet, per year for your exclusive home office space if it’s used for the full year. If you only use that space part of the time, then you pro-rate that amount, Tipple said.
- Direct: This could result in a larger deduction but requires you to track all your home office expenses, including any costs related to repairing and maintaining the space. “If you have a spare bedroom and made repairs to turn it into an office – added built-in shelving, painted it to get it ready for zoom meetings, for example – all that can be counted towards home office expenses,” Tipple said.
You can also claim deductions for a portion of other expenses such as rent or property taxes, home depreciation and utilities based on the proportion of the space to the rest of your house. For example, if your office is 250 square feet and your home is 1,000 square feet, you’d deduct 25% of your allowable expenses (250/1,000 = 0.25). If you had $10,000 in eligible home-related expenses, you could claim up to $2,500 in deductions. There isn’t a limit on how much you can deduct.
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Can I deduct supplies?
Yes, if they are both common to your industry and necessary to help your business and you have receipts.
Items you might deduct include cell phones, laptops, printer, and other office supplies.
“Given the value of these items, you can just write off the entire amount and expense it,” Tipple said. “You don’t need to capitalize it. It would go on Schedule C as office or supplies expense in the other expense section.”
Remember, though, if you also use any of these items for personal use, only the proportion used for work should be deducted. For example, if you buy a $2,500 laptop but use it 40% of the time for work, you can write off $1,000.
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Can I deduct business meals?
Yes, 2022 will be the last time people can deduct 100% of their business meals.
The Taxpayer Certainty and Disaster Relief Act of 2020 temporarily boosted the business deduction for food and beverages to 100%, including tax and tip, for 2021 and 2022. The deduction reverts to the pre-pandemic 50% in 2023.
Note, entertainment expenses are not deductible and haven’t been since the Tax Cuts and Jobs Act in 2017. If you take someone somewhere that has both entertainment and food, you must separate the food from the entertainment cost and only deduct that portion.
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Is there any way for W-2 wage workers to get some money back for expenses?
Not through your taxes, but you might be able to ask your employer.
“You can try to get your company to pay for it if they require you to work from home,” Tipple said. “They can reimburse you and deduct it, but then, some might just require employees to come to the office.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
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