There are several tax reforms coming into effect this year affecting people who work from home. Many people will no longer be able to claim tax deductions to write off home office expenses. This is a huge concern now that more people are working remotely under quarantine. Spending more time at home means expenses will undoubtedly rise. If you had planned to claim those deductions on your next tax return, you should make sure you are still eligible for reimbursement.
Tax Cut and Jobs Act
The tax reforms recently passed in Congress will have a huge impact on the work force. This is especially relevant since many of us now work remotely. Furthermore, an online survey reported that nearly a third of respondents said they would like to continue doing so once restrictions are lifted. This means your average worker is spending more money towards business expenses each month.
In the past, you could itemize and deduct many of these expenses on your federal tax return. However, the Tax Cuts and Jobs Act has limited who is eligible. Now, only self-employed works can claim the deduction to receive the tax break. Those who are employed by someone else are no longer considered eligible for this reimbursement.
State Deductions for Home Office Expenses
The Tax Cuts and Jobs Act went into effect 2018, meaning these changes will affect your 2020 tax return. The most substantial change is that only self-employed tax payers can claim the tax write-offs for their home office. In addition, it also eliminates you from claiming “miscellaneous itemized deductions.”
The good news is that some states have not adopted the same guidelines for state tax returns. If you live in California, New York, Alabama, Arkansas, Hawaii, Minnesota or Pennsylvania, you may still receive some reimbursement. These states allow you to claim employee business expenses as a state tax deduction. While you may not receive a full reimbursement, at least some of these states are allowing some compensation.
What Qualifies for Home Office Tax Write-Offs
According to the IRS, you can deduct any cost associated with your home workspace. However, your home office must be exclusively and regularly used for business purposes. The tax code does not explicitly state what this covers, so self-employed workers operate on the honor system. Keep in mind you will have to justify these deductions if the IRS decides to audit you.
Some of the most common deductions deal with the space itself. This includes rent or mortgage interest, property taxes, homeowners insurance, and home depreciation. In addition, you can include a percentage of your utility bills each month. For example, if your office occupies 10% of your home, then you can claim 10% of your annual utilities costs. Also remember to add the cost for any computer equipment, home repairs, or furniture specifically associated with your home office.
If you plan to write off home office expenses, there are a few things to remember. This deduction will only benefit you if you exceed the standard deduction for itemized deductions. This threshold varies state by state, so you will need to check your local tax laws to determine the amount. If you find these changes in the tax codes complicated and confusing, you are not alone. Contact a professional tax preparer with any questions to determine how these changes will affect you.