When workplaces around the country closed abruptly due to the coronavirus outbreak, a lot of people had to get used to working from home fast. In a best-case scenario, your employer volunteered to cover the costs of a faster internet connection, or a desk chair for your temporary home office.
But it’s a safe bet that many of the costs of working from home—either for a brief period this spring or until further notice—have become your responsibility.
In the olden days (OK, before 2018), if you itemized deductions on your federal tax return, you could deduct expenses related to your job, as long as those costs hadn’t been reimbursed by your employer.
But the Tax Cuts and Jobs Act of 2017 dramatically increased the standard deduction and took away some opportunities to deduct expenses from your individual tax return. The costs of moving for a job got nixed, as did the chance to deduct expenses related to your job. And it includes any expenses of working from home.
“The only way to take a home office deduction or any other deductions for expenses incurred while working at home is if you’re self-employed,” explained Eric Bronnenkant, head of tax at Betterment. “If you’re not self-employed and you’re working from home right now due to COVID-19 and you find out that you’ll need, for example, a more expensive high-speed internet connection or a new camera or a new printer, you unfortunately can’t get a tax deduction for it.”
He said the elimination of the unreimbursed expenses deduction will last through at least 2025.
But you may still be able to take a tax deduction for the costs of setting up your home office if you’re a W-2 employee and your employer isn’t chipping in (Freelancers and side hustlers, you can still deduct your home office expenses on your Schedule C.)
You just have to do it on your state taxes instead of your federal return.
Several states still allow you to take this deduction, explained Mark Jaeger, director of tax development at TaxAct. That list includes California, New York, Minnesota, Arkansas, and Alabama.
To check your state’s rule, try searching for “state name + work from home deduction” or “state name + itemized deductions.” You can also go directly to your state government’s website and search for “itemized deductions” there.
For instance, California allows you to deduct expenses relating to your job if those unreimbursed expenses exceed 2% of your federal adjusted gross income. So if your AGI is $50,000, you’d have to spend at least $1,000 of your own money on your new home office setup to be eligible to deduct it from your state tax return. (You might remember that 2% stipulation from your federal return if you deducted work expenses prior to 2018.)
If you had to buy, say, a desk chair, an external monitor, a printer, and maybe a phone headset to be able to do your work from home every day, you might get to that threshold. Or, maybe you were slated to go to a conference or training program that has pivoted to an online version. If you were paying for that education yourself, you could deduct the cost of your class or conference plus all the other stuff you bought to work from home.
Of course, if you plan to take this deduction, it means you’re going to itemize instead of taking the standard deduction for your state. But if you’re using an online program to file your taxes, that system will be updated with your state’s tax law and will likely walk you through the math to determine which deduction method benefits you more.
Keep in mind that if you’re able to deduct your pandemic work-from-home expenses, you have to wait and do it when you file your 2020 tax return for your state. So for now, all you have to worry about is getting organized.
Jaeger recommends taking pictures of receipts with your phone and saving them in a folder on your computer to refer to at tax time. “There are so many small things that can add up over time,” he said, “So if you organize and store [those photos] you can easily come back to it” at tax time.
Some of those expenses might end up getting reimbursed by your company eventually, or you may be able to have another conversation with your boss to make the case for getting all or part expenses covered. But keeping good records still helps there. “The more data you can come with when talking to your manager, the better,” Jaeger said.
And come tax time, if you still need those receipts, you won’t have to scramble to get organized.
For more about optimizing your workspace, check out the video below: