Work-From-Home Tax Deductions: How to Determine if You're Eligible

As part of COVID-19 social distancing, millions of Americans stopped going to the office and started working from home instead. If you made this switch, you might have spent a considerable amount of money making your home comfortable and productive for work.

Depending on your employment status, you may be eligible for work-from-home tax deductions to help cover these expenses.

Extra costs of working from home

Working from home can lower some of your costs, like your commute. But it also means spending more in other areas. Some of the most common home office expenses include:

• New home office furniture like a computer desk, chairs, tables and lamps
• Office equipment like a computer, printer, scanner or shredder for confidential documents
• Higher utility costs—you're likely using more electricity by being at home and may need to upgrade your internet speed
• Office supplies like pens, paper, ink, staples and postage to mail documents
• A babysitter to watch any of your children who weren't attending school due to COVID-19

What to know for employees

If you're a W-2 employee working from home, unfortunately there aren't many tax breaks you can claim for your expenses. The Tax Cuts and Jobs Act of 2017, or TCJA, eliminated most of the tax breaks that could've applied to employees working from home in exchange for reducing tax rates overall.

Before then, employees could deduct non-reimbursed work expenses that exceeded 2% of their adjusted gross income—including costs of working from home—but this deduction no longer exists. The TCJA also made it so that W-2 employees can no longer claim a home office deduction.

If you had to pay for childcare so you could focus on your work, you could be eligible for a tax break under the Child and Dependent Care Tax Credit. This credit can be worth up to $3,000 in tax savings if you have one child and up to $6,000 if you have two or more.

For other expenses like your home office, ask your employer if they'll reimburse you for some of the costs. They'd be able to deduct the reimbursement from their taxes, but you can't claim these work-from-home tax deductions as an employee.

What if you're self-employed?

Freelancers, business owners and other self-employed workers have an easier time receiving work-from-home tax deductions. If you're in this category, you could deduct the cost of furniture, equipment, office supplies, postage, phone and other remote-work expenses against your business income.

You could also potentially deduct a portion of your utilities and even some of your rent or mortgage through a home office deduction, although this can be a little trickier to qualify for. To be eligible for this deduction, your home office must be your principal place of doing business.

If you rent an office space or other outside location for your business, you typically aren't eligible for the home office deduction. However, if you switched to working at home during the COVID-19 pandemic, you could be eligible to claim this deduction for that period of time.

Make sure you maintain the home office only for business use. If you or other family members also use it for personal reasons, it's no longer deductible. This could be something as simple as watching TV at night in your home office.

Tips to prepare for taxes

If you think you might be eligible for any of these work-from-home tax deductions, keep track of your expenses and receipts during the year. When you file your taxes, you can submit these costs as business deductions. You won't have to submit your actual receipts, but hold onto them until the IRS approves your return just in case they ask for verification.

For the home office deduction, measure the approximate square footage of your office compared to the rest of your home. This is the percentage of your rent or mortgage and utilities you can deduct. For example, if your home office makes up 20% of your home, you could deduct up to 20% of these bills.

It's a good idea to talk with a tax specialist for additional information. You should also ask them to give you updates if anything changes. The government continues to pass bills related to COVID-19, so it's possible Congress could add new deductions to help employees working from home in addition to what's already been passed.