Working from Home: Can You Claim the Home Office Deduction or Write Off Other Business Expenses on Your 2020 Tax Return?
People temporarily telecommuting because of the coronavirus pandemic are wondering if they can get a tax deduction out of it. It depends on your employment status.
Like millions of other Americans, you might be working from home right now because the coronavirus has closed your office. Sure, you're probably saving money on commuting costs, work clothes and lunches, but now there are other unreimbursed expenses falling in your lap. You're suddenly paying for printer paper and ink, upgrading your Wi-Fi, running up your electric bill, and using up all your paper clips and note pads. Wouldn't it be nice if you could get a tax break for these unexpected costs?
Well, maybe you can. Some people can deduct their business-related expenses, and there's something called the "home office deduction" that lets you write off expenses for the business use of your home. Whether or not you can claim these tax breaks depends on your employment status.
Employees Miss Out
If you're an employee working from home during the crisis, I'm sorry to say that you can't deduct any of your related expenses.
Before 2018, you could claim an itemized deduction for unreimbursed business expenses, including expenses for the business use of part of your home, if they exceeded 2% of your adjusted gross income. However, this deduction was eliminated by the 2017 tax reform law.
Self-Employed People Cash In (Maybe)
If you're self-employed, you may be in luck. Self-employed people can deduct office expenses on Schedule C (Form 1040) whether they work from home or not. This write-off covers office supplies, postage, computers, printers, and all the other ordinary and necessary stuff you need to run an office.
The home office deduction may also available to self-employed people—if they can satisfy all the requirements. This tax break covers expenses for the business use of your home, including mortgage interest, rent, insurance, utilities, repairs, and depreciation. It doesn't matter what type of home you have, either—single family, townhouse, apartment, condo, mobile home, or even a boat. You can also claim the deduction if you work in an outbuilding on your property, such as an unattached garage, studio, barn, or greenhouse.
The key to the home-office deduction is to use part of your home "regularly and exclusively" as your principal place of business. If you're only working from home for part of the year, you can only claim the deduction for the period that you can satisfy the "regularly and exclusively" requirements. (See IRS Publication 587 for more information about these and other requirements for the home office deduction.)
If you qualify, there are two ways to calculate the deduction. Under the "actual expense" method, you essentially multiply the expenses of operating your home by the percentage of your home devoted to business use. If you're working from home for part of the year, you only include expenses incurred during that time. Under the "simplified" method, you deduct $5 for every square foot of space in your home used for a qualified business purpose. Again, you can only claim the deduction for the time you are working from home. For example, if you have a 300-square-foot home office (the maximum size allowed for this method), and you're working from home during the coronavirus crisis for three months (25% of the year), your deduction is $375 ((300 x $5) x 0.25).
Employees with a Side Gig?
If you're an employee at a "regular" job, but you also have your own side hustle, you can claim deductions for business expenses and the home office deduction for your own business—if you meet all the requirements. Being an employee doesn't mean you can't also claim the deductions you're entitled to as a self-employed person.