So, ismy newhome office a tax deduction?
If you’ve had to work from home this year, you’re probably wondering if your home office is a tax-deductible business expense. (Those standing desks are expensive!)
Between new monitors, ergonomic desk chairs, printers and utility bills, people are paying hundreds, if not thousands, of dollars to avoid working at the dining room table.
Don’t get too excited, though. Texas tax professionals say you’re not going to see many changes in the coming tax filing season even if you’ve spruced up a home office.
What’s the difference between a deduction and a business expense?
Anyone who’s previously filed taxes has seen the part of the form asking if you want to calculate your deductions, or just take the standard deduction. Deductions are ways to reduce your income tax.
Expenses are a type of deduction that reduce how much of your income is taxable . They’re ordinary and necessary things you pay for when you’re running your own business. That’s subject to varying interpretations, said Mario Garcia, a tax partner at the Houston offices of Calvetti Ferguson, a Texas tax firm.
Garcia said the Internal Revenue Service keeps track of certain expenses that are easily abused for personal use — think cellphones, business travel and cars. If you face a tax audit, be prepared to defend your spending.
“Maintain the documentation, maintain the receipts,” he said. “It is really going to be important to establish if those deductions get challenged.”
I’ve spent a lot of money upgrading my home office this year. I might have a case for deducting expenses. How
do I know for sure?
I feel you; I see you. This year I’ve put nearly $100 toward a printer,
$90 toward an audio transcribing service, $20 for call recording software and $30 toward notebooks and pens. To the ordinary person, that could be a lot of money that may not have been in the 2020 budget.
David Epperson, a tax partner at Dallas-based Saville, Dodgen & Company, said that employees who have been asked to work from home might not have a case because many companies are offering reimbursements to build a home office.
Section 139 in the IRS code allows companies to receive tax credits for providing financial aid to employees during a disaster. And yes — the federal government has declared the COVID-19 to be a disaster. They’re not obligated to take it, though many have.
“You just hope the grace of your employer will help you take on some of that financial burden,” Epperson said.
You’re better off asking your employer if they can offer any kind of reimbursement or stipend for paying for work from home costs. (Mine reimburses me for the printer and software.) The Chronicle’s L.M. Sixel has a guide on how to do just that.
My employer won’t reimburse. Can I file for a deduction?
In previous years, federal law allowed employees to deduct the cost of upgrading their home office if their employers wouldn’t reimburse for things necessary to build a home office.
That’s no longer allowed, Epperson said. As of a 2018 change to the
Tax Cuts and Jobs Act, taxpayers will not be able to deduct home office expenses from their income.
“What we’re seeing now is that because the employee is working from home and incurring these out-of-pocket costs, there are no tax breaks because it was offset by the increase in the standard deduction (in the Tax Cuts and Jobs Act),” Epperson said.
You’re pretty much out of luck if they won’t reimburse, tax experts said.
What happens if I’m self-employed?
People who are working for themselves or as gig workers for other companies can still deduct expenses.
If you no longer run your business at a rented office space because of the pandemic, and have switched to a home office as your primary location of doing business or to regularly meet with clients, your taxes will not be affected by the changes to the Tax Cuts and Job
Act listed above and you can deduct your home office space on your taxes.
How will my taxes work if I’ve moved to a new state to work during the pandemic? Do I file taxes inmy new state, or here?
Many states base their taxes on how long you worked in that state, Epperson said. For example, if you moved to Texas, a state that doesn’t have income tax, from California, a state that does, you’ll be asked to pay a reduced amount of income tax calculated by howmany days you worked in California.
“If you’re a resident of Texas and working in California, then you might have a situation where youmight pay less tax, because you’re not physically present in California,” Epperson said.
Your taxes may also be lower if your company reduced your salary for moving to a city with a lower cost of living and you now fall into a lower tax bracket.