I’m talking about financial costs, not emotional or relationship costs. Those last two are real, but are better addressed by a mental health professional. Have you been working from home and wondering about possible tax deductions? You are not alone. According to Kate Lister, President of Global Workplace Analytics,1 “[O]ur best estimate is that 25-30% of the workforce will be working-from-home multiple days a week by the end of 2021.” My brother’s employer told him that he and his co-workers will work from home until April 2021, and it’s possible that will become permanent. What are the financial and tax implications of this sizable shift in the work life? Should you remodel your home to provide a nice home office? These are great questions.
Can you get a tax deduction for working from home?
Unfortunately, employees asked to work from home cannot deduct home office expenses. Business use of a home, per IRS guidelines, applies primarily to self-employed workers. For example, a self-employed bookkeeper that has a home office space in which to work can generally deduct a portion of their home’s expenses on their Federal tax return. There are direct expenses (a new lock on the door to keep the kids out) that could be fully deducted and indirect expenses (homeowner’s insurance, utilities, property tax) that can be partially deducted. The portion of those indirect expenses you can deduct is based on the proportion of your home that is a dedicated home office. A section of the family room couch or kitchen table does not count no matter how often you work there. A separate, dedicated space not for personal mixed use is required to qualify for a deduction. Now, if you are a banker and are told to work from home — sorry, you cannot take a deduction.
What about my new expenses working at home?
If your employer keeps you at home to work for a long period, you certainly should get a comfortable chair and a nice desk. You might also want some serious sound proofing if you have kids and dogs at home with you. First, check with your employer, to see if they will pay for a new chair and desk or even pay for an upgrade to your internet service. They are likely going to be saving a lot on office supplies, heating and cooling and sodas for the office fridge. Maybe they will help you out. If not, then you have “unreimbursed employee expenses.” Those once were included on the Federal 1040 Schedule A of itemized deductions, but the tax reforms that took effect in 2018 eliminated that deduction. There are a few states that allow state tax deductions for these expenses, but not North Carolina.
Should I put money into a home office space?
If it looks like you are going to be working from home for the long haul, I’d seriously consider investing some money into a nice, separate, well-equipped home office. A comfortable space can contribute to physical and mental well-being and even impact your efficiency and work performance, as many are finding out. If you do not have the cash available to do the home improvements needed, consider using a home equity line of credit. Rates are currently incredibly low. Conventional wisdom may be changing about which home improvements are worth the investment when it comes time to sell. A great home office suite might end up being the new “must have” for future home buyers. If it’s not used for working from home in the future, it could be converted to a remote learning hub, a craft room, a mini theater, or something else creative.
Any opinions are those of David Werle and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notices. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.