Over the last year or so, some Americans have become accustomed to working from home. Many companies have encouraged working from home (WFH), as it reduces a variety of expenses and keeps staff safe from the pandemic.
Tax season is underway, and many have been asking whether they can claim certain items or how the process works in our new world. Will you be able to deduct home office expenses, or will your tax bill be higher? Tap or click here to stay protected from tax scams.
It is important to know what your rights are and what you can list on your tax return. With so many people working from home, tax practitioners have been inundated with queries. For many, it’s not good news. Let’s answer some of the biggest tax questions on your mind.
A note before we get started: This article is for informational purposes only. For answers to any specific questions based on your situation, talk to a trusted tax professional.
Are you eligible for a deduction in taxes?
Getting the bad news out of the way first, those who received a W-2 tax form from their employer won’t be eligible for a work-from-home tax deduction. This normally includes full-time staff or regular employees. If you are an independent contractor or self-employed, you will receive a Form 1099.
Full-time employees also can’t claim expenses that employers wouldn’t normally cover. These changes came into effect with the Tax Cuts and Jobs Act in 2017, which suspended home deductions for business use until 2025.
According to reports, the Act removed the deduction for unreimbursed employee expenses. Previously it allowed “remote workers to write off unreimbursed work costs that exceeded 2% of their adjusted gross income.”
Can you claim new office equipment?
If you bought a new desk, chair, or stationery to work from home, the short answer is no. Again, the Tax Cuts and Jobs Act from 2017 removed the provision that allowed employees to claim certain expenses on their tax filing.
Tax experts advise that you would be better off asking your employer to reimburse you the amount you spend, as the Internal Revenue Service will deny it. If you are a freelance worker, remote consultant or primarily work online, your odds are somewhat better.
You will be able to claim the home-office deduction if the space that is being used is dedicated as an office and isn’t part of another room. Simply put, you can’t claim the home-office deduction if you work from the living room or kitchen table.
But there is a slight caveat. You can only deduct according to the square feet of the office space. Once you’ve determined the room’s size, you can deduct the corresponding percentage from utilities, repairs or other expenses.
Work out-of-state? You might pay taxes twice
Especially in the tri-state area, many people work and live across state borders. This could have unexpected complications when it comes to filing your taxes.
If you worked in two different states during the last year, you might have to file taxes in both states. There are some states, however, that have waived this requirement if the territories are neighbors. You can apply to a specific state be exempt from paying taxes there.
Mark Jaeger, director of tax development at TaxAct, told USA Today that people who used to work in one state but now work from home in another also don’t have to pay tax twice.
In fact, you can apply for a credit for the tax that you have already paid to another state. That should make things a bit easier and lighter on the tax burden.
If you live in Arkansas, Connecticut, Delaware, Nebraska, New York, or Pennsylvania, we have some bad news. Those states have a “convenience tax” that taxes workers based on where the employer is located.
If you work from home in a state other than your employer’s, you might have to pay two state taxes.