Work From Home Tax Deductions: The Ultimate Guide

Are you an employee who works from home? If so, you could be eligible for home tax deductions that aren’t available to employees who work at the company office.

Before 2017 and the Tax Cuts and Jobs Act, it was much easier to deduct home office expenses. At that time, salaried employees could deduct certain expenses that were required to perform their duties from home. Items such as travel, furniture, computers and other expenses were easily deductible.

Today, it’s not so simple. Taking just any home office expense is no longer possible, but there are exceptions to be on the lookout for. We’ll break down these exceptions below to help you determine if you can take advantage of any.

Do Home-Based Workers Get Tax Deductions?

There are five different groups of employees that can be potentially eligible to deduct at least some expenses when working from home. These include:

1. Artists. Performing artists, pay attention. You could qualify for deductions if you have performed for at least two employers during the tax year, have adjusted gross income of $16,000 or less before deductions and had allowable expenses of at least 10% gross income from your artistic pursuits.
2. Military. If you are a US military reservist of Army, Navy, Air Force, Marines, National Guard, Coast Guard or Public Health Service, you could also deduct some qualifying expenses.
3. Politicians. If you are a state or local government official, regardless of whether you were elected or appointed, you could take deductions for home-based work expenses if they are compensated at least in part on a fee basis.
4. Individuals with Disabilities. If you have physical or mental disabilities that limit your ability to be employed, you can deduct expenses necessary to work from home, including attendant care expenses.
5. Educators. If you are a K–12 teacher, you can deduct qualified expenses for books, computers, supplies and other expenses required for working from home. This exception also applies to counselors, principals and aides in K–12 schools.

Home Tax Deductions for Self-Employed Workers

If you’re a salaried employee, unreimbursed employee expenses are no longer deductible. However, work from home expenses are still deductible for self-employed people. Practically speaking,this means that if you are classified as an independent contractor instead of a regular employee, the above restrictions don’t apply. Self-employed contractors can deduct items that statutory employees can’t, such as utilities, insurance and depreciation of assets, including computers and even real estate.

How do you determine if you’re an employee or independent contractor? Generally, if you receive a W-2 statement showing wages paid and taxes withheld, you are considered an employee. If you get a 1099-Misc reporting earnings, you are considered an independent contractor, which allows you to claim work from home expenses.

So, what can employees do if they can’t take a home-based deduction? Get your employer to cover costs. For example, you can purchase items and have your employer reimburse you under an Accountable Plan. Why would the employer do that? They can deduct the reimbursements as business expenses, thus reducing their own income.

So, in short, expenses incurred from working at home are not deductible for most employees since 2017. However, the current limitation on deductions is set to expire in 2025. This means it’s possible that many deductions for employees will open up again in the future. For the time being, only certain groups of employees are able to take these home-based deductions, though self-employed contractors are still able to deduct expenses for home offices.

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Work From Home Tax Deduction Details

Remember: deductions for items needed to work from home must be itemized on your return. If you do not itemize your deductions, you can’t deduct unreimbursed employee expenses. In addition, work from home expenses can only be deducted if they are greater than 2% of adjustable gross income. For example, if your AGI is $100,000 and your total miscellaneous deductions are $5,000, you can only deduct $3,000 — two percent of $100,000 is $2,000, and the amount over that is deductible.

Be ready to show receipts and other documentation of deductible expenses with your form 2106: Employee Business Expenses. This form is then attached to your main 1040 tax return, which is where your work from home expenses are reported on Schedule A. If you are self-employed, your expenses are typically recorded on Schedule C, which does not have a floor on adjusted gross income.

Most Popular Work From Home Tax Deductions

Two of the most common work from home tax deductions are the home office deduction and the mileage deduction.

Home Office Deduction: .This is extremely hard to qualify for as an employee, but it can be done. If your home office is used regularly and exclusively for business purposes, you may be eligible to deduct a portion of your home-related expenses. However, it must meet the “convenience of the employer” test. To qualify, it must:

1. Be a condition of your employment
2. Be necessary for the business to function, or
3. Be needed in order for the employee to fulfill their duties.

If you qualify, you could include portions of mortgage interest, property taxes, some utilities and homeowners insurance as home office deductions.

Mileage Deduction: If you travel with a personal vehicle for business travel, your travel expenses could potentially be deducted. Remember, as noted above, you can’t deduct any expenses that your employer reimburses. If, for example, your employer reimburses only a portion of the standard business mileage rate, you could deduct the excess amount per mile.

All in all, there is likely ample opportunity for you to take work from home tax deductions, either as a self-employed individual or as an employee if your employer will reimburse. While there are fewer deduction options than there were prior to 2017, there are still some great ways to save money. If you’d like more information on different tax strategies and how to properly tax plan, schedule a free demo with Corvee.