Tax deductions

2021 Work from home Tax deductions


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Boy with mother in his home office

The 2017 tax reform law ended the ability for most taxpayers to deduct work-from-home expenses just in time for millions more people to start working in response to the Covid pandemic. Nowadays, only a few selected groups of homeworkers can still deduct the corresponding expenses. However, even if you are not one of them, there are still a few possible ways for you to get tax deductions on your work from home expenses. A Financial Advisor can help you find all the deductions and credits you are entitled to.

Before 2017, employees could deduct the expenses necessary for the performance of their duties at home. Reasonable expenses can include travel and entertainment, office furniture, computers and other tools of any trade they had.

Today, of course, many more people are working from home and hence employee spending on things like faster internet connections, improved home networking equipment, offices, etc. Travel and entertainment spending is on the decline, again due to the decline in travel linked to the pandemic. But home office expenses of all kinds are no longer deductible, except for a handful of exceptions.

Exceptions for home workers

The tax recognizes employees in five different groups as potentially eligible for at least some of the expenses necessary to work from home. They are:

  1. Performing artists may be eligible for these deductions if they have performed for two or more employers during the tax year, have adjusted gross income of $ 16,000 or less before deductions, and have incurred qualifying expenses. at least 10% of the gross income from their artistic activities.

  2. U.S. Military Reservists in the Army, Navy, Marines, Air Force, Coast Guard, National Guard, or Public Health Department may also deduct certain qualifying expenses.

  3. State and local government officials, whether elected or appointed, may benefit from deductions for home work expenses if they are remunerated at least in part on the basis of fees.

  4. People with physical or mental disabilities who limit their ability to hold a job can deduct the expenses necessary for them to be able to work from home, including attendant care.

  5. Kindergarten to Grade 12 teachers can deduct qualifying expenses for books, supplies, computers, software, and other expenses needed to work from home. This exception also applies to advisers, directors and assistants.

How to claim deductions for working from home

Woman in her home office

Woman in her home office

Tax deductions for expenses necessary for working from home are only available to taxpayers who itemize their deductions. In addition, home work expenses can only be amortized if they exceed 2% of the adjustable gross income. As is the case with most tax matters, taxpayers may be required to submit receipts and other documents relating to deductible expenses. Deductible expenses are declared on Form 2106.

This IRS form is then attached to the main 1040 tax return and the expenses related to working from home are reported on Schedule A, the Schedule of Itemized Deductions.

Other approaches

Homework expenses are always deductible for self-employed workers. So if a worker is classified as an independent contractor rather than a regular employee, the above restrictions do not apply.

Independent independent contractors also benefit from a number of deductions that are not available to employees, including those that are part of the exceptions. These can include expenses for utilities, insurance, and depreciation of assets, including computers and real estate.

Determining whether a worker is an employee or an independent contractor can be complicated and the IRS makes the decision on a case-by-case basis. However, in general, if a worker receives a W-2 statement showing wages paid and taxes withheld he or she is an employee. If the worker instead obtains a 1099-Misc Income Statement, he or she is an independent contractor and may be able to claim homework.

If a homeworker is a regular employee and is not one of the excluded types, one way to get help with homework costs is to ask the employer to cover the costs. The employer can purchase the necessary items and provide them to the employee, or the employee can purchase them and be reimbursed. The employer will then be able to deduct the reimbursements as they arise. business expenses.

As part of their responses to the pandemic, some states are requiring employers to reimburse expenses to employees if employers require employees to work from home. So that employees are not required to report reimbursements as taxable income, employers may need to have specific policies in place outlining which expenses are subject to reimbursement.

Final result

Man working in his home office

Man working in his home office

Teleworking expenses are no longer deductible for most employees since the 2017 tax reform law. For people reporting tax years before 2018, homework can be used. In addition, the current limit on deductions is set to expire in 2025, so after this tax year, expenses related to working from home will again be deductible for many employees. However, certain groups of employees may still benefit from these deductions. And independent independent contractors can still deduct expenses for home offices. Employers may be able to reimburse employees for necessary expenses and then deduct the expenses as business costs.

Tax advice

  • Deducting expenses related to working from home can get complicated and an experienced financial advisor can be of great help. The free tool of SmartAsset connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you reach your financial goals, start now.

  • One way to speed up paying taxes or just make sure you’re paying the right amount in federal taxes is to use a tax calculator. SmartAsset federal income tax calculator is free and easy to use.

Photo credit: © iStock.com / Drazen Zigic, © iStock.com / vichie81, © iStock.com / Eva-Katalin

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