Tax Deductions When Working from Home
If you’re like millions of Americans, then you spent the better part of 2020 working from home and will probably continue to work remotely well into 2021. You may even be working from home beyond 2021 as more and more companies are deciding to go permanently virtual.
With so many people now using their home as their office, you may be wondering: “Are there any tax deductions when working from home?”
The answer is: it depends. Some workers can and some workers can’t take advantage of tax deductions when working from home.
If You’re a Salaried Employee
Let’s get the not-so-good news out of the way first. If you worked from home in 2020 and you received a W2, then you’re not eligible to claim any tax deductions for anything work related.
It doesn’t seem fair that we can’t claim home office related tax deductions now that so many of us are working virtually due to the COVID-19 pandemic. However, employees did lose the ability to deduct home office expenses after the Tax Cuts and Jobs Act went into effect on in 2018. This portion of the law will remain in effect until 2025, at which time lawmakers can decide to let it lapse or extend it.
If You’re a Freelancer
There’s better news if you’re a freelancer who works from home. If you receive 1099s from the people you work for, then work-related expenses like the ones listed below can be claimed as tax deductions.
- Office supplies: Pens, pencils, paper, toner cartridges, envelopes, sticky notes, tape, labels, envelopes. These low-cost items add up over time and can be deducted from your tax bill, so keep receipts.
- Hardware and software: Hardware includes laptops, tablets, computer monitors, printers, routers, etc. Software includes computer programs like Word, Photoshop, Adobe Acrobat, Zoom, Skype, Excel, and others.
- Internet connection and cell phone: You can’t do much business without an internet connection or a cell phone, so you can deduct the annual bill for those services. If you also use your internet connection or cell phone for personal use, then you can at least use a portion of what you pay as a tax write off. Ask your accountant about how to determine the appropriate deduction.
- Home office: If you use a portion of your home exclusively for conducting business on a regular basis then you can write off a portion of your property taxes, mortgage interest, utilities, insurance, etc. The IRS provides a formula for figuring all of that out. Or, ask your accountant.
- Subscriptions: Much of the software we need to do work these days isn’t a one-time purchase, but a subscription-based service. This would include programs like Canva, Survey Monkey, DropBox, Slack, or other cloud-based services. Don’t forget about any anti-virus software you pay on an annual or monthly basis.
- LinkedIn: If you pay for a premium LinkedIn account, then you can claim that cost as a tax deduction.
- Office furniture: The cost of chairs, desks, shelves, a stand-up desk, etc. can all be deducted. If you put a fresh coat of paint on the walls of your office last, you can even deduct that cost.
- Social Security Tax: If you’re self-employed and have to pay the full 15.3% Social Security tax yourself (W2 employees split the tax with employers), you get to write off half of what you pay. What’s even better is that there’s no need to itemize to take advantage of this deduction.
If You’re Almost Any Taxpayer
Whether you’re working from home, in the office, or both, make sure you don’t overlook these write-offs you that almost any taxpayer may be entitled to:
- Charitable costs: You may remember to write off those big charitable contributions you made during the year. But don’t forget the little ways you give. Did you buy stamps to help a non-profit organization’s fund-raising mailing? That counts. Maybe you contributed a meal to a local soup kitchen. The cost of the ingredients is a charitable deduction. Keep receipts for everything!
- Gambling losses: Casinos may have been closed in 2020, but online gambling became incredibly popular. If you didn’t have much luck, then you can claim those losses as long as you also report winnings as taxable income. And here’s a hot tip: non-winning lottery tickets count as gambling losses.
- Home mortgage insurance: If you pay private mortgage insurance on a home loan that originated after 2006, then you can write off those premiums.
- American Opportunity Credit: If you’re paying for college tuition, then pay attention. The American Opportunity Credit can give you a tax credit of up to $2,500 per college student.
- Student loan interest (paid by parent): If your parents are paying back your student loans, they are actually giving you two gifts. The first gift is obvious. The second gift is the fact that you can write off up to $2,500 of student-loan interest on your own tax return. Yup, you read that right, your parents pay the loan, and you get the tax deduction.
- The Lifetime Learning Credit: Did you or your spouse pursue higher education courses to improve your job skills or learn new skills in 2020? Then you may be eligible for an up $2,000 credit on your taxes.
- Credit for dependents: If you have kids then you are probably well aware of the $2,000 Child Tax Credit. However, this credit disappears after your child turns 16. However, there is a $500 tax credit available for dependents over age 16—even if they’re living at college. You may also be able to claim this credit for any older family members that you’re caring for at home.
- Military travel expenses: If you’re part of the National Guard or military reserves and you must travel more than 100 miles from your home for meetings or drills then you can deduct some of those travel expenses. Expenses include the cost of lodging, a portion of meals, and an allowance for driving your own vehicle.
Get the Tax Deductions You Deserve
Someday we all may be able to claim tax deductions when working from home. Until then, consult with your accountant to make sure you’re taking advantage of every tax write off you’re entitled to.
Maria Gold is a Content Manager/Writer for Empire Resume. She is dedicated to helping educate and motivate people with the latest career articles and job search advice. Her interests range from writing to programming and design. She is also passionate about innovation, entrepreneurship, and technology.