How Does Working from Home Affect Your Tax Deductions?

If you spent most of 2020 working from home, you’re probably wondering which tax deductions are applicable. After all, working from home in Union City, NJ means increased expenses for the employee—you’re paying for your own power, air conditioning, internet and more. If your employer normally offers a lot of perks, like free coffee and food, you might be spending more than you normally would. Plus, thanks to tax changes in 2017, employees are no longer able to claim the home office tax deduction.

Potential tax deductions

Here are some of the working-from-home tax deductions available in Union City, NJ:

• Employer accountable plan: If your employees have a lot of expenses now that they’re working from home, you can set up an accountable plan to reimburse them for these costs. Each cost must have a business-related purpose, and needs to be substantiated with documentation (usually a receipt). Any excess allowance has to be returned to the employer. In turn, the employer can deduct this from their taxes and deduct the expense. That saves them money on payroll taxes—it’s a win-win situation for everyone involved.
• Employer purchases equipment for employees: If your employees need appropriate equipment for their work-from-home situation, another way to save on taxes is for the employer to purchase equipment, send it to the employees and deduct the costs. This could be used for anything from office chairs and desks to new monitors, laptops and other essential equipment. As long as it has a business connection, you can deduct it from your taxes as an expense.
• Employer reimburses for home office: Employees can’t claim home office deductions, but an employer can. As long as the work-from-home space qualifies as a home office under IRS definitions, you can give your employees a monthly stipend and deduct it from your taxes.
• Expenses reimbursed by employers: Like the accountable plan, an employer can also choose to reimburse employees through a non-accountable plan. It’s considered W-2 income and does not require receipts or other proof of what the money was used for.
• Qualified disaster relief: Finally, you may be able to give your employees money (and deduct those costs as expenses) as part of a qualified natural disaster. COVID-19 has been declared a federal disaster, which means employers can reimburse work-from-home costs as a result. Disaster relief can cover childcare expenses, unreimbursed medical expenses, office equipment and transportation.

A word of caution

Make sure you talk to your accountant before filing your taxes, whether you’re an employer or employee. Since tax rules change often, the tax deductions for remote work in Union City, NJ may change in the near future. Let your accountant guide you in determining which you can claim now and which you can set up for future filings. Finally, if you have employees working in different states, keep in mind that state tax laws may be different across the board.

For answers to your questions and to get help claiming work-from-home deductions, call the team at Kedean’s Generation today.

Categorised in: Tax Preparation