Like so many people, once you started working from home, you decided to invest in a home office to make yourself more comfortable and more productive. Because you’ve spent money on work-related items, you’re excited about those work-from-home tax deductions that you can finally take. But which home office deductions are actually up for grabs?
Full-Time Employees Who Receive W-2s
If you’re a full-time employee, your employer withholds federal and/or state taxes from your paycheck, and you receive a W-2 tax form at the end of the year, unfortunately, you cannot take any home office deductions. Even though you work from home, and even though you paid out-of-pocket for your beautiful new home office, federal tax law doesn’t allow for you to take any work-from-home deductions. Any office furniture, office expenses, vehicle and/or commuting expenses, are all considered personal expenses and are not deductible for you.
But wait, I’m Freelance, So I Get Some Deductions, Right?
The term “freelance” can get a little tricky when it comes to tax deductions. Many people may consider themselves a freelance worker because they don’t receive the typical benefits that go with a full-time job, or they only work on a project-by-project basis. But if the company you work for still withholds taxes from your paycheck and issues you a W-2 form at the end of the year, you are, according to tax law, still considered an employee, and you can’t take any of those deductions.
It is a different story if your freelance work means:
- You work on a project-by-project basis or as a sole proprietorship.
- Your various employers do not withhold taxes from your paycheck.
- And you receive 1099-NEC tax forms (instead of W-2 forms) at the end of the year from the companies you work for.
In this case, you are considered “self-employed” and now you can take home office deductions, along with other deductions related to your work expenses. These are reported on a form, known as schedule C, with your yearly taxes. However, it also means that you are responsible for paying your own social security and Medicare taxes, known as the self-employment tax, so while you may be able to reduce your taxable income with schedule C deductions, you will also owe additional money for the self-employment tax.
But All of My Friends Are Doing It
Here at Moore & Paquette Tax Group, we like to call this “watercooler talk.” You’re hanging out with your work friends and colleagues, and they tell you about how much they’re saving on their yearly taxes because they work from home and are taking deductions for all of their work expenses. The truth is: They are either exaggerating, don’t really understand which deductions they took on their taxes, or their tax preparer is not familiar with current tax law. Or. . .
State Exceptions
. . .They did, indeed, take personal business deductions on the state level. Some states still allow employees to take personal business expenses as deductions on their state tax return only. You should talk with a tax preparer to find out if your state allows those deductions.
The hard truth of the matter is that, especially on your federal tax return, there are no such things as work-from-home tax deductions. But talking with one of the tax preparers at Moore & Paquette Tax Group can help you figure out exactly which deductions you can take.