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As workplaces across the country shut down unexpectedly due to the coronavirus outbreak, many individuals had to quickly adjust to remote work. In the best-case scenario, your employer might have covered costs like faster internet or a desk chair for your temporary home office.
However, it’s highly likely that many of the expenses tied to working from home—whether for a brief time this spring or for the foreseeable future—are now your financial responsibility.
Before 2018, if you itemized deductions on your federal tax return, you could claim expenses related to your job, as long as those expenses weren't reimbursed by your employer.
The Tax Cuts and Jobs Act of 2017 significantly increased the standard deduction while removing some opportunities to deduct expenses from your individual tax return. It eliminated the ability to deduct moving costs for a job, as well as expenses related to your work, including any costs tied to working from home.
Eric Bronnenkant, head of tax at Betterment, explained, "The only way to claim a home office deduction or other expenses related to working from home is if you're self-employed. If you're not self-employed and you're working from home due to COVID-19, and you find you need things like a faster internet connection, a new camera, or a new printer, unfortunately, you can’t claim a tax deduction for those expenses."
He mentioned that the removal of the unreimbursed expenses deduction will remain in effect until at least 2025.
However, if you're a W-2 employee and your employer isn't covering the cost, you may still be eligible for a tax deduction for setting up your home office (Freelancers and side hustlers, you can still deduct your home office expenses on Schedule C.).
Instead of claiming this deduction on your federal return, you'll need to do it on your state taxes.
Mark Jaeger, director of tax development at TaxAct, noted that several states still permit this deduction. These include California, New York, Minnesota, Arkansas, and Alabama.
To find out your state’s specific rules, try searching online for "state name + work from home deduction" or "state name + itemized deductions." Alternatively, you can visit your state government’s website and search for "itemized deductions."
For example, California allows deductions for job-related expenses if those unreimbursed expenses exceed 2% of your federal adjusted gross income. So, if your AGI is $50,000, you would need to spend at least $1,000 of your own money on home office equipment to be eligible for a deduction on your state tax return. (You might recall the 2% rule from your federal return if you used to deduct work-related expenses before 2018.)
If you had to purchase items like a desk chair, an external monitor, a printer, or perhaps a phone headset to work from home, you might reach that $1,000 threshold. Or, if you were scheduled to attend a conference or training program that has transitioned to an online format, and you paid for it yourself, you could deduct both the class cost and the other items needed to work from home.
If you plan to claim this deduction, you’ll need to itemize instead of taking the standard deduction for your state. However, if you’re using an online tax filing service, it will be updated with your state’s tax laws and should guide you through the calculations to determine which method of deduction is most beneficial for you.
Keep in mind that if you're eligible to deduct your work-from-home expenses due to the pandemic, you'll need to wait until you file your 2020 state tax return. For now, focus on staying organized.
Jaeger suggests taking pictures of your receipts with your phone and storing them in a folder on your computer, so you can easily refer to them when it's time to file taxes. “There are a lot of small things that can add up over time,” he noted. “By organizing and saving [those photos], you can quickly retrieve them later at tax time.”
Some of these expenses may eventually be reimbursed by your employer, or you could have another discussion with your boss to make the case for getting all or part of the costs covered. However, maintaining good records will always help. “The more data you bring when talking to your manager, the better,” Jaeger advised.
When tax time arrives, you won’t have to rush to gather your receipts if you've kept them organized.
For more tips on optimizing your workspace, take a look at the video below:
