COVID-19 Induced Working from Home Tax Write-Offs
COVID-19 has led to millions of workers no longer going to their offices, with working from home becoming the norm. Employees across a broad spectrum of sectors have set up shop in their remote home offices nationwide. They often paid for the computers, printers, and desks they had to buy out of their own pocket. So many people are now asking whether they can benefit from tax write-offs due to working from home.
Employees Are Not Eligible for Write-Offs
Since tax year 2018, employees cannot claim deductions for any unreimbursed expenses for work carried out at home. Therefore, any reimbursement for items purchased to carry out essential work from home must come from the employer.
Should employers purchase and provide such items, they could deduct the cost as ordinary and necessary business expenses on their returns. If an employee buys the items, and the employer compensates the employee, the situation is very similar. As long as the expenses are necessary to the industry, the reimbursements are not taxable income. Sadly, if employees had to buy the equipment themselves without reimbursement from their employers, they cannot claim any tax deductions.
Independent Contractors are Eligible for Write-Offs
Unlike employees, independent contractors purchasing supplies and equipment without reimbursement can claim tax deductions for purchases such as office furniture and new computers. They can also write off professional fees and education, training, certification, and licensing costs.
Independent contractors can also claim deductions for running a home office, with certain restrictions. For example, they must use the office regularly for working purposes. The office may be a client meeting place or primary place of work, and they do not need to use the entire space exclusively for work.
Independent contractors can also benefit from certain deductible expenses, including prorated portions of the rent or mortgage, insurance, utility bills, and home repairs. The amount eligible that a contractor can claim varies depending on the office and home’s square footage.
Tax Savings from Relocation
Some employees working from home may have relocated to areas with a lower cost of living, which enables them to benefit from tax savings. However, it can also result in complex tax situations for 2021. Employees who have made permanent moves must file tax returns in both states in the coming year.
Employees who have temporarily relocated for more than six months must pay tax in both their temporary locations and home states. As a result, they must file tax returns in both states.
For questions or more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).