The coronavirus pandemic forced millions of American workers to quickly transition to a work-from-home (WFH) setup, but not every worker had a turnkey office in their house or apartment.
So, many people bought new chairs, desks, and other office equipment out of pocket to accommodate their WFH arrangement.
Now some may wonder: Can I deduct those costs and others on my 2020 federal tax returns?
“The answer depends on the status of individuals,” Lewis Taub, a certified public accountant and director of tax services at the New York office of Berkowitz Pollack Brant Advisors, told Yahoo Money. “If they’re employees who work at a company or if they are self-employed.”
Many companies allowed or even encouraged their employees to work from home during the coronavirus pandemic, but any expenses employees incurred to make the new setup work aren’t deductible on your federal income tax returns. Nor are any expenses related to your home office space, like utilities, insurance, or taxes.
That’s because the Tax Cut and Jobs Act, signed into law at the end of 2017 under the Trump administration, got rid of the unreimbursed business expense deduction for employees along with the home office deduction for employees.
Before that, employees could deduct unreimbursed business expenses — along with other miscellaneous expenses, which included home office costs — if they totaled more than 2% of their unadjusted gross income. Employees also had to itemize their taxes then to get the deduction.
A handful of states — Alabama, Arkansas, California, Hawaii, Minnesota, New York, and Pennsylvania — do offer a deduction for unreimbursed employee business expenses on their state returns.
“But this can be very limited,” Taub said.
Workers should see if their companies can reimburse those expenses through an accountable plan that the employer sets up. Any reimbursement is not considered taxable income for the employee, Taub said, and the company can write it off on its own taxes.
Unlike company employees, self-employed workers have more opportunities to take deductions.
As a sole proprietor, any expenses related to your business, such as paper, printers, computers, and other equipment can be deducted as ordinary and necessary business expenses from self-employment income on Schedule C or Schedule F.
Self-employed people can also take a home office deduction if the person has a place that’s used exclusively for business on a regular basis. It doesn’t have to be a separate room — it can be in a corner of a room — but its exclusive use must be for business.
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“It can’t be the sofa at 2 o’clock for meeting clients and at 6 o’clock you’re watching the nightly news on it,” Taub said.
As part of the home office deduction, you can write off some of your utility expenses, taxes, insurance, repair, and depreciation. There are two ways to figure out how much to deduct:
Simplified option: You can deduct $5 per square foot — up to 300 square feet — of the portion of your home that’s used for business.
Regular method: You determine the percentage of your home’s floor space that you use for business and apply that percentage to eligible deductible expenses.
Where the home office deduction gets murky is for self-employed workers who had an office location pre-pandemic, but have been working from home since the outbreak began. The original office location may still be considered the primary place of business, according to Taub, if it hasn’t been closed permanently.
“If somebody doesn’t want to go to the office but still has that office and has the potential to use that office, that won’t work,” he said.
Many teachers across the country also worked from home, conducting class remotely. That may have involved buying a better laptop, ring light, microphone, or headphones.
Some of the money spent on these costs may be deducted using the educator expense deduction, which stipulates that eligible expenses are amounts "paid or incurred for participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom," per the IRS.
Qualified educators can deduct up to $250 of unreimbursed business expenses. If both spouses are eligible and file a joint return, they can deduct up to $500 — but not more than $250 each. You also don’t need to itemize your taxes to claim this deduction.
Eligible educators are kindergarten through grade 12 teachers, instructors, counselors, principals, or aides for at least 900 hours during a school year in a school that provides elementary or secondary education as determined under state law.
Still, you may want to check with a professional to make sure your expenses qualify. "As long as used exclusively for education," Taub said, they should be eligible.