According to some estimates, nearly 60 percent of U.S. workers have been or are still working from home as a result of the pandemic. Several clients have asked about the deductibility of home office expenses. Unfortunately for most work from home (WFH) workers, your home office expenses are not deductible on your personal income tax return.
After the 2017 tax reform act, employees could no longer deduct business expenses related to a home office. If the employer provides supplies and equipment used for the performance of one’s office job, which the IRS assumes companies would readily do, these expenses are deductible for the company, but not characterized as income for the individual. If an employee purchases supplies that can be labeled “ordinary and necessary” or items deemed by your industry as needed for your line of work and expenses them for reimbursement by the company, these reimbursements will not count as taxable income to the employee.
To avoid having employees report such expenses as taxable income, employers should create policies that state what qualifies for reimbursement when employees need to purchase supplies and equipment at home. The reimbursement is generally included in gross income if there is no requirement to substantiate the expense and/or if the employee is not required to return payments in excess of the actual expense.
Independent Contractors Are Treated Differently
Independent contractors who buy home office equipment and supplies without being reimbursed from their clients can obtain ordinary business deductions to lower their taxable income. They can also claim expenses such as depreciation on certain types of property, utilities, insurance and more. (Contact us for more information on the categories which qualify.) Items such as office space, as long that space is used exclusively and regularly for business purpose, are deductible as are related expenses such as internet, phone bills, office supplies, Zoom subscriptions, etc.
The tax guidelines related to COVID-19 don’t quite align with some of our clients’ expectations. However, others take solace in the fact they don’t have to commute each day and that they’ve mastered the art of being heard when starting a Zoom call instead of being told they’re on “mute”.
After the 2017 tax reform act, employees could no longer deduct business expenses related to a home office. If the employer provides supplies and equipment used for the performance of one’s office job, which the IRS assumes companies would readily do, these expenses are deductible for the company, but not characterized as income for the individual. If an employee purchases supplies that can be labeled “ordinary and necessary” or items deemed by your industry as needed for your line of work and expenses them for reimbursement by the company, these reimbursements will not count as taxable income to the employee.
To avoid having employees report such expenses as taxable income, employers should create policies that state what qualifies for reimbursement when employees need to purchase supplies and equipment at home. The reimbursement is generally included in gross income if there is no requirement to substantiate the expense and/or if the employee is not required to return payments in excess of the actual expense.
Independent Contractors Are Treated Differently
Independent contractors who buy home office equipment and supplies without being reimbursed from their clients can obtain ordinary business deductions to lower their taxable income. They can also claim expenses such as depreciation on certain types of property, utilities, insurance and more. (Contact us for more information on the categories which qualify.) Items such as office space, as long that space is used exclusively and regularly for business purpose, are deductible as are related expenses such as internet, phone bills, office supplies, Zoom subscriptions, etc.
The tax guidelines related to COVID-19 don’t quite align with some of our clients’ expectations. However, others take solace in the fact they don’t have to commute each day and that they’ve mastered the art of being heard when starting a Zoom call instead of being told they’re on “mute”.
For further information or if you have more questions related to your specific tax needs, contact Tene Thomas or Thomas Jones.
Thomas Jones Jr., CPA
Partner
Tax and Small Business Solutions
Tene Thomas, CPA
Partner
Tax and Small Business Solutions