Telecommuters who used to be able to write off the cost of working from home could face a higher tax bill this year.
The Tax Cuts and Jobs Act, which took effect in 2018, eliminated the ability for employees to write off business expenses that are unreimbursed by their company. For workers whose employer allows them (or wants them) to telecommute full-time, losing that tax break might be painful.
“For people who work 100 percent at home, the loss of that deduction could be substantial,” said Cari Weston, a CPA and director of tax practice and ethics for the American Institute of CPAs.
It’s worth noting that the change does not affect the self-employed — i.e., freelancers and independent contractors — who work from home. That crowd can carry on with deducting qualified business expenses. They also might benefit from the new 20 percent deduction on qualified business income for a broad swath of small businesses and solo operators.
The ranks of employees who work from home at least half of the time have been growing, with 115 percent growth between 2005 and 2015, according to a 2017 report by Global Workplace Analytics and Flexjobs. Nevertheless, they still comprise only about 3 percent of all U.S. workers, or close to 4 million employees.
Before the 2018 tax year, anyone who itemized their deductions could also get a tax break for certain miscellaneous expenses (which included unreimbursed business expenses) that exceeded 2 percent of their adjusted gross income.
For remote workers — who shoulder the cost of running a home office — that threshold was more easily crossed because they could deduct a portion of expenses like their mortgage, utilities, property taxes and maintenance, along with other job-related costs that were not reimbursed by their company.
And while the new tax law nearly doubled the standard deduction and reduced marginal tax rates across the board, telecommuters might not come out ahead, depending on how sizable that previous tax break was for them.
If you discover you’re among that group, you can try to mitigate that increase in the cost of doing business from home by approaching your employer. For instance, you could ask for a bump in pay to compensate for the loss of the tax break, or ask to be reimbursed you job-related expenses that you previously wrote off on your taxes.
You also could ask your company if you can become an independent contractor. However, even if your employer agreed, you’d have to weigh the loss of benefits that can come with being a full-time employee — say, health insurance, vacation time or access to a retirement plan — with that move.
Additionally, you’d have to pay self-employment taxes, which means picking up the share of Medicare and Social Security taxes that your company pays on your behalf, said Bill Smith, managing director at CBIZ MHM’s National Tax Office in Washington.
And if you think of setting up a side gig simply so you can funnel your home-office expenses through that, you need to be sure it’s a valid business in case the IRS comes calling.
“If you do set up a side gig and it doesn’t have a legitimate business purpose, that’s tax evasion,” Weston said.
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