May 05, 2021
2020 was an interesting year for employees across the country. Thanks to the COVID-19 pandemic, many non-essential workers were furloughed or laid off, while those who could work from home, even in non-essential positions, did so. By working from a home office, bedroom, den, or any other space in their home, they incurred some expenses, using their personal Wi-Fi, electricity, and so on in order to do their jobs. Some companies reimbursed employees for these additional expenses in the form of bonuses, while others did not.
So, now the question lingers: Can these expenses be deducted from a tax return? That’s an interesting question without a clear answer.
What Types of Expenses Did You Incur?
Employees who spent most of 2020 working from home due to the COVID-19 pandemic wound up having to pay a number of additional expenses, while their employers saved money by not having to power, heat, and cool their offices. Some of these expenses are related to utilities, while others come from the home office furniture and electronics that they had to purchase in order to get their jobs done from home. Examples include:
- Electricity – The most obvious utility, electricity is needed to power computers and Wi-Fi, as well as charge smartphones and other things necessary to work from home. Since many workers weren’t previously home during the day, they didn’t have all of the lights and other things on that they did while working at home over the past year. This led to larger than usual electric bills.
- Gas, Oil, and Other Means of Heating a Home – Everyone wants a comfortable workspace. This is where paying for natural gas, heating oil, and other means of heating a home come into play. While furnaces did tend to run while workers were in the office in order to avoid pipe bursts and uncomfortable pets, they were set at lower temperatures when people weren’t home. During the pandemic however, workers had to boost the temperatures in their homes in order to remain warm enough to focus on the job.
- Wi-Fi – Wi-Fi is perhaps the most important expense. Quite a few workers had to upgrade their home Wi-Fi systems and even buy more powerful routers in order to be able to do their jobs. Work computers tended to need to run at a higher speed, requiring faster home internet. Since companies often didn’t absorb these costs, their workers did, paying more out of pocket in order to get their work done each day.
- Phone – Although most employees had a smart phone prior to the pandemic, some had to use theirs more than usual in the course of the average day working from home. For example, additional apps, like time trackers, productivity boards, and communication options, such as Zoom, had to be downloaded to personal phones. This used up bandwidth, sometimes leading to higher than usual phone bills. Plus, there are things like long distance calls and hotspot usage (as a back-up to Wi-Fi) that employees needed to pay for as well. All of this adds up.
- Furniture – In order to be able to work from home successfully, those who had to space to set up a home office often did so, buying furniture like desks, ergonomic chairs, file cabinets, bookcases, printer carts, lamps, and more. While these items might be used once the employee goes back into the office full time once again, they may not. And who is responsible for reimbursing them for those expenses?
- Electronics – Electronics are expensive. While many companies provided their employee with a workstation (a laptop or desktop computer, mouse, additional monitor, and printers, if necessary) to take home and work from, others did not. These workers had to buy the equipment themselves. Plus, there are additional pieces of equipment that might have been necessary, like better web cameras for meetings, fax machines, and more powerful routers. These personally-purchased electronic devices won’t go back to the office alongside their owners. Instead, they will stay at home and possibly gather dust.
These are just a few examples of the many expenses accrued by employees who had to work from home over the past year, due to the pandemic. There are others that are not mentioned, all of which depend on the type of work done and the supplies needed. For example, workers may have had to buy standard office supplies, such as notebooks, pens, and so on, in order to take notes throughout the work day.
The Home Office Deduction
The IRS has a home office deduction that qualifying people can use to deduct certain expenses on their tax return. However, there are a number of different caveats that apply. For example, in order to deduct things like utilities, office supplies, and more from your taxes, you need to have an actual home office. This is a separate space where you do nothing but work. You can’t declare your kitchen table or living room coffee table to be your home office, because you do other things there as well. A dedicated home office serves the purpose of being solely a workspace and nothing else.
In addition, your home office needs to be in your home, apartment, condo, or trailer. If you’re a displaced worker spending time clocking in and working from a hotel room or other short-term rental option, you can’t declare the deduction.
On top of this, the size of the space matters, since you can only declare a deduction of $5 per square foot of home office space, up to a maximum of 300 square feet. Anything over that can’t be deducted using the simplified method. The regular method is more itemized and allows you to actually calculate the square footage that your office takes up.
How Does Your Company Classify You?
Although the IRS has a home office deduction, not everyone can use it. For example, workers who spent part of the last year working from home may not be able to place it on their tax return, because they don’t fully qualify under IRS guidelines at this particular moment. It all comes down to how your employer classifies you.
- W2 – Those who receive a W2, whether they are hourly or salaried workers, are eligible for bonuses and benefits, and also have taxes taken out of their paychecks. At this point in time, W2 employees can’t use the home office deduction on their tax returns, because they don’t qualify for it. They are supposed to have a traditional office space where they work, not a home office. Unless something changes, this means that the majority of people who are working from home cannot deduct any of their work expenses.
- 1099 – Employees who receive a 1099 and are considered independent contractors may qualify for the home office deduction. These workers do not have taxes taken out their paychecks, and are usually subject to the independent contractor tax bracket, which means that they pay more at tax time than W2 workers who don’t receive a tax return. As long as they have a qualifying space, they often can use the home office deduction.
Do You Have a Side Gig?
In addition, traditional workers who receive a W2 from one employer, yet have a side gig where they are classified as an independent contractor, may be eligible for the home office deduction. However, they not only need to have a qualifying space in their homes where they do nothing but work, but they also have to declare both types of income (standard and side gig) on their tax returns, paying two different tax rates – one for each type of work. This complicates their tax return, but it does mean that in most cases, they can deduct their home office expenses from their income.
What About Teachers?
When it comes to teachers, things are a bit different. While most aren’t considered to be independent contractors, meaning that they don’t qualify for the home office deduction despite conducting classes from home, they have a special deduction that they can use on their returns.
Called the educator expense deduction, they can deduct up to $250 spent in unreimbursed supplies and fees from their taxes.
Are You Unsure of Whether or Not You Can Deduct Certain Expenses?
If you have plenty of questions regarding the home office deduction and are wondering if you qualify for the ability to use it on your tax return, then it’s important to seek the help of a professional tax preparer.
Contact Us Today
If you have worked from home during the COVID-19 pandemic and are wondering whether or not you can deduct certain work expenses from your taxes, then reach out to the tax advisors at Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.
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