With the massive movement towards remote work, a lot of us have questions about what this means for our 2021 taxes. Are there deductions you can take advantage of? What if you use your cell phone for work? Can you deduct for a home office?
The answer to these questions is more complicated than you might think, and more often than not the answer is no. Below we clarify some myths about tax deductions for those of who have been working remotely for most of this year.
I’m working from home. I can deduct my office space and supplies, right?
Probably not. While it seems intuitive to take home office deductions, in reality few W2 employees can take these deductions. Prior to 2018, this was possible, but the Tax Cuts and Jobs Act changed tax regulations and ended these write offs for employees until at least 2025. In addition, the TCJA ended deductions for “qualifying expenses.”
What if I’m self-employed?
If you are self employed, the situation is a little different. If you use a portion of your home exclusively for working and you work primarily from home, you can take the home office deduction and also deduct for a variety of qualifying expenses.
If I can’t deduct from federal taxes, can I get a break from my state?
Maybe! A limited number of states allow for employees to deduct unreimbursed expenses from their state taxes: Alabama, Arkansas, California, Hawaii, Minnesota, New York and Pennsylvania. If you live in one of these states be sure to check for state specific regulations. If you’ve lived and worked from home from multiple states, you’ll want to have a log of how much time you spent where to assist your accountant in determining what you can and can’t deduct.
None of this applies to me. Is there anything I CAN do?
About 40% of employers have reimbursed employees for costs associated with working remotely, and this might be the best bet if you are hoping to recoup home office and other related costs. While employers are not obligated to reimburse you, if you are able to work out a deal, this is the most cost effective way forward. This way you get back 100% of what you spent instead of just a fraction.
Since so many costs were shifted to employees, isn’t this a little unfair?
If you think so, you’re not alone. Lots of costs that used to fall on the workplace, such as the utilities, heat, and even the toiletries that we used for a third of the day, are now paid for by employees, not to mention office furniture and supplies. There has been some discussion of including tax deductions for non reimbursable expenses in various expansions of the Cares Act, but no movement forward yet.
As always, we recommend that you consult a tax professional if you have questions about your specific tax situation. Still, we hope that this information will help to clarify what you can expect to get (or not get) in terms of tax relief in 2021.