Can You Write Off Your Home Office?
There was a real combination of unusual circumstances last year, and that mixed with a recent tax amendment (the Tax Cuts and Jobs Act), has caused some questions to arise. Did you relocate during the pandemic? Were you working from home for most of the year? Does that mean you can write off your rent or mortgage? How about the new office printer or work desk—can you deduct those items?
Unfortunately, the answer in most cases is, ‘no,’ not if you are a W-2 employee, but there are some things to consider. Here is what you should know as you prepare for tax season.
The Home Office Stipulation
As more and more people now work from home – whether they started their own business or work remotely for their employer. Many were even sent home for a few months because of Covid. Naturally people are wondering whether they can claim some of their expenses, such as internet, home office updates, and more. You might be able to get a tax break for some of your home office expenses, but you need to follow some important rules.
In past years, W-2 employees who itemized deductions on their tax returns were able to include several work expenses as miscellaneous deductions. Though in order to receive a tax break, these deductions had to exceed 2% of their adjusted gross income, and even when that criteria was met, only the amount exceeding the 2% could be deducted.
The Tax Cuts and Jobs Act, effective from 2018 through 2025, eliminated that option. However, if you’re a 1099 employee (contractor or freelancer) the TCJA did not change the home office expenses rules, as you’re considered to be self-employed. This goes beyond just working from home. Employees who receive a paycheck and a W-2 from an employer are not considered self-employed, and can’t claim the home office deduction, regardless of the reason they’re working from home.
If you are self-employed, you can find deduction information in IRS Publication 587, but here are a few questions you should ask yourself to see if you qualify for these deductions.
- Is a portion of your home used “exclusively and regularly” as your principal place of business?
- Do you have a “place where you meet or deal with clients” regularly?
In order to qualify for a tax deduction, you’ll need to be able to show that your home is where you conduct most of your essential business activities.
