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If you are working from home during COVID, can you take a home-office deduction?

Working on your couch won't help on your

Working on your couch won't help on your taxes, "but if you have a separate office where you meet clients you may be able to claim the deduction," says CPA John Bono. Credit: Friedman LLP

The Genie is out of the bottle. Good luck getting her back in. Millions of employees who have been working from home since the pandemic are in no hurry to return to the office, neither are many employers.

What’s not to love about working from home? No commute, getting dressed means putting on sweats, fewer annoying co-worker encounters and you’re still getting your work done. While it can be a bit lonely sometimes even with all those Zoom meetings, it’s not the same as having someone in the cubicle next to you. But mostly, working from home likely has more upside than downside.

You might be wondering if you can cash in further, like getting a home office deduction. Here’s what the experts say.

Employee or independent contractor?

As far as getting a home office deduction, John Bono, a CPA and partner with Friedman LLP in Uniondale says,  “Unfortunately, for taxpayers who are employees and receive W-2s from their employer, the Tax Cuts and Jobs Act passed in 2017 eliminated the deductions for miscellaneous expenses including unreimbursed employee business expenses. Therefore, an employee is unable to deduct these expenses as an itemized deduction after 2017.”

However, New York State decoupled from this part of  the law and will allow taxpayers who itemize their deductions on their NYS income tax return, to deduct miscellaneous expenses, including unreimbursed employee expenses to the extent that they exceed 2% of their federal adjusted gross income, Bono says. Some of these expenses would include a new computer or iPad, including internet charges, if they are used exclusively for business.

“If you use the items partially for business and partially for personal use, then you would only be able to include the cost based on the percentage of business use. Similar expenses would be for a cellphone that is required to be used for work or a desk to work on,” Bono says. 

While many people won’t be able to take advantage of the deductions because they are employees, if you are self-employed or an independent contractor that receives a 1099 for the work you perform and file a Schedule C, you can deduct your business expenses against your business income. You could also take a home-office deduction if you meet the requirements, including regularly and exclusively using the home office to conduct business and it must be your principal place of business. “Working on your couch won’t help, but if you have a separate office where you meet clients you may be able to claim the deduction,” Bono says.

The amount of the home office deduction is limited based on several factors including the income attributable to the use of the home office, deductions based on the home being your residence, whether or not you used the home for business, and business deductions that aren’t home office related.  Any expenses that can't be deducted because of the limits may be carried over and deducted in later years. 

Speak up

Just because the government won’t reimburse you for expenses, that doesn’t mean you should have to foot the bill for that new computer you bought or the upgraded Wi-Fi you shelled out money for. The same goes for the printer paper, ink and whatever else you’re buying to make working from home optimal. Christopher Jervis, an enrolled agent with Lone Wolf Financial Services in Winder, Georgia, has a suggestion. “Ask your employer to institute an Accountable Reimbursement Plan to help with these costs.”

Never heard of this? In an accountable plan, an employee submits eligible expenses to the employer for reimbursement. “Provided that the employee is not paid more than the cost of the items, and provided they have sufficiently documented the expense, the employer can reimburse the employee [making the employee whole]  without it being considered income,” Jervis says.

This is a win-win as the company can take the reimbursement as an expense, removing it from their income.

Good luck. When you ask, cross your fingers and toes. Says Jervis, “Unfortunately, most employers do not see the benefit to these plans and choose not to offer them.”

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