Medora LeeUSA TODAY
Show Caption
If you took advantage of your company's flexible work from home policy last year, don't be surprised if all those receipts you diligently kept all through the year for tax deductions end up in the bin.
That's because wage employees who choose to work from home take on the full weight oftheir related expenses, tax experts say. And some of those expenses can add up. A survey by credit card comparison site creditcards.com in 2020 said people working from home spent an average of $108 more per month, led by higher expenses for food and utilities.
The 2017 Tax Cuts and Jobs Acteliminated unreimbursed itemized deductions for employees, and Congress never brought them back despite a surge in people working from home. The rule runs through 2025, said Eric Scaringe, principal at certified public accounting firm UHY.
Need to know: When is Tax Day 2024? Deadlines for filing tax returns, extensions and what you need to know
Among those who have a workplace outside of their home, 35% said they never enter their offices, down from 43% in January 2022 and 55% in October 2020 but up from only 7% before the pandemic, according to Pew Research Center. Forty-one percent split their time between home and office, up from 35% in January 2022, it said. Despite all that work at home, most of them likely aren't eligible for any home office deductions.
Home office deductions only apply to small business owners who are self-employed.If you do freelance work unrelated to your regular job at home, you might qualify.The rules are strict, though, and calculating your deductions can be complicated.
Here’s a step-by-step guide forfiguring out if you qualify for deductions and if so, what to consider in your calculations:
Who qualifies for home office deductions?
Generally, if you receive a W-2 wages tax document, you’re not eligible unless you also have a side gig that you do from home - at least on the federal level.
"Some states might allow you to take some deductions," said Mark Jaeger, vice president of tax operations at preparer TaxAct.]
Pennsylvania and New York, for example, allow employees to deduct some unreimbursed expenses. Check your state's rules.
Self-employed: If you're self-employed and use yourhome officeexclusively and regularly for that work, you may be able to deduct from your federal taxes a portion of home-related expenses, such as mortgage interest, property taxes, homeowners' insurance, and utilities.
But be mindful of details, experts say.
“Ifyou work on your dining table, you can't deduct that because it’s not used exclusively for work,” said Therese Tippie, EP Wealth Advisors’ tax manager and financial planner. “But you could purchase a desk and have it in a corner of your house and if that’s used exclusively and regularly for work, you can deduct that space.”
There are two ways to take a deduction for your home office space: simplified or regular.
Simplified home office deduction
You can deduct $5 per square foot, up to $1,500 or 300 square feet, a year for your exclusive home office space --if it's used for the full year. If you only use that space part of the time, then you prorate that amount, Tippie said.
Regular direct home office deduction
This could result in a larger deduction. However, it requires you to track all your home office expenses, including any costs for repairing and maintaining the space.
“If you havea spare bedroom and made repairs to turn it into an office -- added built-in shelving, painted it to get it ready for Zoom meetings ... all that can be counted toward home office expenses,” Tippie said.
You can also claim deductions for a portion of other expenses such as rent or property taxes, home depreciation,and utilities -- based on the proportion of the space to the rest of your house.
For example, if your office is 250 square feet and your home is 1,000 square feet, you'd deduct 25% of your allowable expenses (250/1,000 = 0.25). If you had $10,000 in eligible home-related expenses, you could claim up to $2,500 in deductions. There isn’t a limit on how much you can deduct.
Expensive utilities: Even with a mild winter, more Americans struggle to pay their energy bills
Fairness: A 30% national sales tax? Abolishing the IRS? What the FairTax Act of 2023 would do.
Can I deduct supplies?
Yes, if they are both common to your industry and necessary to help your business -- and you have receipts.
Items you might deduct include cell phones, laptops, printers, and other office supplies.
“Given the value of these items, you can just write off the entire amount and expense it,”Tippie said. “You don't need to capitalize it. It would go on Schedule C as office or supplies expense in the other expense section.”
Remember, though, if you also use any of these items for personal things, only the proportion used for work should be deducted. For example, if you buy a $2,500 laptop but use it 40% of the time for work, you canwrite off $1,000.
Who files returns: Who has to file a tax return: It's not necessary for everyone. Here are the rules.
Side gigs: Higher inflation means more work. More Americans take on multiple jobs to make ends meet
Business lunch tax deduction reverts to half
As of Jan. 1, 2023, companies had to go Dutch. The business lunch deduction reverted to the pre-pandemic 50% in 2023. The Taxpayer Certainty and Disaster Relief Act of 2020 temporarily boosted the business deduction for food and beverages to 100%, including tax and tip, for 2021 and 2022.
Note, entertainment expenses are not deductible and haven’t been since the Tax Cuts and Jobs Act in 2017, the IRS said. If you take someone to an establishment that offers entertainment and food, you must separate the food from the entertainment cost and only deduct that portion.
Working cars: Tax season 2023: What exactly is the mileage rate? There's more than one.
Get out of my business: Who needs to know? Small businesses object as feds infringe on Americans' privacy.
Is there any way for W-2 wage workers togetsome money back for business expenses?
Not through your taxes, but you might be able to ask your employer.
"You can try to get your company to pay for it if they require you to work from home,” Tippie said. "They can reimburse you and deduct it, but then, some might just require employees to come to the office.”
More of your 2024 tax season questions answered:
IRS announces new tax brackets for 2024. What does that mean for you?
Flush with new funding, the IRS zeroes in on the taxes of uber-wealthy Americans
Need a new tax strategy? These money-saving tips taken by Dec 31 may help pad your pockets
Your single largest payday may be a 2023 tax filing away. File early to get a refund sooner
Is it better to pay someone to do your taxes or do them yourself? We'll help you decide.
New IRS tax brackets and standard deductions for 2024: See how much they were raised
IRS delays 1099-K rules for ticket sales, announces new $5,000 threshold for 2024
IRS to offer pandemic-related relief on some penalties to nearly 5 million taxpayers
Driving for work will pay more next year after IRS boosts 2024 mileage rate
What is OASDI tax on my paycheck? Here's why you and your employer pay this federal tax.
A 30% national sales tax? Abolishing the IRS? Here's what the FairTax Act of 2023 would do
These 8 states don’t have an income tax. Does yours make the list?
What is net pay? How it works, how to calculate it and its difference from gross pay
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.comand subscribe to our freeDaily Money newsletter for personal finance tips and business news every Monday through Friday.
