COVID-19 brought remote working setups into the spotlight this year, and as the first regular tax season of the pandemic rolls around, you may be wondering if and how working from home might affect your 2020 taxes.
While transitioning to working from home was necessary, it was also pricey for some people. High-speed internet, printers, ergonomic chairs and quality desks were just a few of the items that flew off warehouse shelves last March and well into the summer. Some companies subsidized these costs for employees, but many people took responsibility for their home office expenses in order to create a more productive space at home.
Deducting some of these home office purchases from your taxes sounds great, but your eligibility hinges on your answer to one question: What’s your tax filing status?
Home office deductions for independent contractors and the self-employed
You can claim home office deductions on your 2020 tax returns if you are self-employed or an independent contractor and you meet IRS requirements, such as:
- Using part of your residence regularly and exclusively as a place of business
- Using part of your residence regularly and exclusively to meet with clients or customers
The home office deduction is available for both renters and homeowners, but the part of your residence in question also has to be the principal place of business.
So, while the home office deduction tax can help, the above requirements make it hard to qualify for, especially since the lines between home and work are so blurred for many people these days.
If you have a workshop attached to your home that’s used exclusively for work purposes, though, we definitely recommend visiting the IRS’s website to see if you qualify for home office deduction.
Tax deductions for employees
If you’re an employee, you aren’t eligible for home office deductions. While this may be disappointing, there are other tax deductions you might qualify for. We’ve listed a few deductions worth looking into below:
- Student loan interest deduction: You could receive a credit of up to $2,500 for qualifying interest on student loans.
- American opportunity tax credit: The AOTC could give qualifying students in their first four years of higher education up to $2,500.
- Child and dependent care credit: You may qualify for this deduction if you had to pay for child care in order for you or your spouse to return to work. While some other deductions have specific dollar amounts attached to them, the child and dependent care credit is based on the amount you spent on care.
- Medical expenses deductions: Medical expenses that exceed 7.5% of your adjusted gross income are deductible, including inpatient care costs, alcohol and drug rehabilitation facility costs, costs associated with false teeth or glasses and other medical expenses.
- IRA and 401(k) contribution deductions: If you made contributions to your IRA or 401(k), you might be eligible for a deduction.