Over the past year, millions of people have transitioned from working in their usual office building to working from home. They set up their home workspace, purchased new office furniture and equipment, upgraded their internet, and bought other needed supplies. Some of these items, such as new desks, computers, printers, or WiFi setups can be quite pricey. So, the question for this tax season is, if I worked from home during the pandemic, can I claim my home office and supplies on my 2020 taxes? The answer largely depends on whether you were an employee or an independent contractor during that time.
Employees Working from Home
Up until 2017, employees who worked from their home office could claim some work-related expenses on their taxes. But the Tax Cuts and Jobs Act got rid of the home office deduction for employees who work from their house. So, who ultimately pays for the equipment and supplies that employees used during quarantine? There are a couple of options.
For some employees, the employer purchased and shipped the necessary equipment directly to their employees. Or, they sent them home with supplies in early 2020. If an employee purchased the home office items themselves, their employers should reimburse them through an accountable plan or by designating the reimbursement as a disaster relief payment. Those reimbursements to the employee will not count as taxable income. If an employee had to purchase equipment or supplies and their employer did not reimburse them, unfortunately, the employee still cannot claim a federal tax benefit for those items.
Employees Who Temporarily Relocated
During the pandemic, some employees left home to be with their out-of-state families or to avoid the congestion of the metro area. If that employee worked out-of-state for more than half of 2020, they might be required to file taxes in both states. (Check with your CPA or tax professional to make sure). Some states announced that they would not consider temporary remote employees, who worked there solely because of COVID-19, as physically working in the state. Other states have not issued any guidance about temporary, remote workers; in these situations, the employee may have additional tax filing obligations. Also, as with the home office exemptions, employees cannot deduct their expenses for relocating to or setting up an office in another state.
An independent contractor is someone who provides goods or services under a written contract or verbal agreement. Contractors do not regularly work for an employer or corporation; they typically work through a limited company or franchise and are paid on a freelance basis.
Independent contractors, unlike employees, can still claim work-related expenses on their 2020 taxes, including equipment, supplies, utilities, insurance, and property depreciation. Because these workers do not have the expectation of being reimbursed from their contracting company, they also have access to self-employment tax deductions to lower their taxable income.
Have Additional Questions? Contact Brian M. Douglas & Associates For Help
If you have additional questions, you may want to reach out to a trusted attorney for help. Brian M. Douglas & Associates are happy to answer or direct your questions. Please call us at (770) 933-9009 for help with issues related to estate planning, business planning, real estate, or probate.