Work from home is on the rise, and many people find themselves blending work and home expenses. Does your home office qualify you for a tax deduction? How about your Internet service that you use both to watch Netflix and attend work meetings on Zoom? Can I claim tax relief for working from home? In this article, we’ll break down the details of work-from-home tax deductions so you can prepare your taxes with confidence this year.
Who Qualifies and Who Doesn’t
There are more work-from-home tax deductions available for self-employed people than there are for remote employees with W-2 income. Since the Tax Cuts and Jobs Act eliminated most itemized deductions on Form 1040 Schedule A – Itemized Deductions, most work-at-home tax deductions are now only available on Form 1040 Schedule C – Profit or Loss From Business.
The main exception to this is qualified educators. If you worked for at least 900 hours in a K-12 school during 2022 and have unreimbursed educational expenses for classroom materials, you can claim up to $300 of those expenses as a tax deduction.
So, to sum up, if you have self-employment income or are an educator, you may claim your work-related expenses as tax deductions. Employees, unfortunately, cannot claim most remote-work-related expenses even if they were not reimbursed by their employer.
What Qualifies and What Doesn’t
The IRS recognizes “ordinary and necessary” business expenses as tax-deductible. An ordinary expense is one that is commonly used in your industry or business, and a necessary one is one that is appropriate and useful for your business.
For example, a Photoshop subscription might be both ordinary and necessary for you if you are a designer or artist. An example of something necessary, but not ordinary, might be an ergonomic cushion for your office chair. This would be something that makes your work easier even if it is not an industry standard. Both would be deductible. However, if you sit at your kitchen table to work from home, and buy a new dining room set, this would not be ordinary or necessary to your work and would not be deductible.
While we’re talking about location, let’s look at the home office deduction. If you have a dedicated home office, you may be able to deduct the following expenses of keeping the office:
- A portion of your rent or mortgage
- A portion of your homeowners’ or renter’s insurance
- A portion of your office-related bills such as phone and Internet
The home office deduction has the following limitation:
- You must use it exclusively for your self-employment work. If you use the same space for self-employment and remote employee work, it is not deductible. Also, if you use the space for personal activities as well as self-employment work, the space is not deductible. For instance, if you do your self-employment work at your kitchen table or in bed, you would not be able to deduct that portion of your home expenses on your taxes as you use the space for other reasons.
To claim the home office deduction, you can use the simplified method or the direct method. The simplified method is simply claiming $5 per square foot, up to 300 square feet of office space in your home. This covers all expenses, so you don’t need to list each related expense separately. Alternatively, you can use the direct method. The direct method involves listing each expense directly related to the office, as well as a proportional amount of general house costs like electricity and Internet. The proportion of deductible expenses is calculated on a square footage ratio of your office to your entire home.
What You Need for the Deductions
The most important thing you will need for the deductions is receipts or other proof of the expense. While you may not need to attach these to your tax return, you will need to have them if your return is selected for an audit.
You will also need self-employment income, and proof that the expenses were tied to your self-employment income, and not to W-2 income.
To claim general work from home tax deductions, you will need IRS Schedule C. This is where you can list general self-employment related expenses, such as subscriptions, office supplies, mileage, and your home office deduction.
The home office deduction has its own worksheet to help you calculate how much you can deduct. This is IRS Form 8829 Expenses for Business Use of Your Home. Once you have calculated your home office deduction on this form, you can use that number to add to your other expenses on Schedule C.
A note for employees: The fact that employees are now excluded from most work-at-home deductions is disappointing. Be aware that if your employer is not reimbursing your expenses to the point that you are making less than minimum wage, this is against the law under the Fair Labor Standards Act. Also, some states may allow work-from-home itemized deductions on your state tax return that are not allowed on the federal return. Check your state’s laws to ensure you get every deduction you can.