Tax ramifications of your new home office probably few or none

So you’re working from home for the first time because of the COVID-19 pandemic.  

Besides the obvious perk of being able to include pajamas in your work attire rotation, might there be some tax benefits, too?

For the person who is not self-employed but has just started working from home, a tax windfall is not likely, according to Rochelle Moore, a principal at the Bonadio Group who works with the company’s Small Business Advisory division.

“Generally speaking, you’re probably going to be out of luck, especially on the federal side,” Moore said. The federal Tax Cuts and Jobs Act of 2017 exchanged some benefits for basically wiping out deductions that could have been claimed by employees working from home. While New York State continues to allow such deductions, there’s a hitch.

A home worker’s office expenses would have to be greater than 2 percent of their adjusted gross income to qualify for making the deduction. Many office workers’ incomes are too high and their office expenses too low to meet that threshold, Moore said. 

People who are self-employed or using their homes to run a business such as daycare were probably already meeting the applicable deduction rules before the health crisis arose, she noted.

Home office users would have to pro-rate their expenses by the portion of the year that they work from home. Using that math, it’s probably not worth the effort of itemization, Moore said.  

“The deduction probably wouldn’t be that substantial. It probably wouldn’t be life altering, and it’s only on the New York side,” she said. “Is it worth the hassle, is it worth the substantiating if someone were to come in and say, ‘Hey, prove all that?’”

Her answer is probably not, unless the tax laws change. 

“I haven’t heard any kind of talk about changing deducting expenses for the home office,” she said. “In the event that does change, I would track (expenses) a little better.”

Moore suggested that rather than think of tax implications for this brief period, people forced to work from home might consider this time as a dry run for a potentially permanent switch. 

Some things to consider are whether you’re just working on occasion when it’s convenient, or full time. An employee working exclusively from home has a better chance of qualifying for deductions than someone plopping their laptop on the dining room table once in a while. 

In a full-time work from home situation, the taxpayer is eligible for claiming costs of operating a home office based on the square footage dedicated to that exclusively, even if it’s just a corner of a bedroom. 

“The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition,” reads publication 587 of the Internal Revenue Service. Allowable expenses under that rule include real estate taxes, mortgage or rent payments, insurance and utilities. 

A home office worker would probably want to negotiate with their employer on other necessary expenses for business, such as use of a cellphone, speedier internet service and office equipment such as a second monitor or an ergonomic workstation, Moore said. Many employers who want you to work from home offer these as incentives anyway, she said. 

Additionally, taxes and expenses aside, a worker should think about whether they have the temperament to work from home, Moore said. 

“There’s some people that just thrive on being around people and it’s just really difficult for their psyche to work from home. They aren’t equipped to work from home just yet,” Moore said. 

Distractions such as childcare or an adult needing health care can make it hard to work from home. 

Moore is personally considering making a change when she has a child in the future, thinking it will make sense then to cut commuting time out of her schedule.  

“Maybe it makes sense I only come into the office one or two days a week, as opposed to spending 10-12 hours a week in the car,” she said. “For some people this is a really good test run.”

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