Deducting Business Expenses in the Age of COVID-19

The migration to telecommuting has lowered expenses for some who no longer commute, but it has also required many professionals to purchase new equipment to be able to do their jobs remotely, and has also necessitated higher internet speeds and new routers for some. Many are also utilizing home office spaces. Now the question many are is, “Can you deduct these costs on your tax return”? According to Kiplinger, it depends on whether you are an employee or an independent contractor.

Employees Cannot Deduct Business Expenses

Before the Tax Cuts and Jobs Act (TCJA) passed in 2017, employees were eligible to deduct qualifying business expenses if they exceeded 2% of the individual’s gross income. Unfortunately, this is no longer the case. The Act struck down the rules allowing these deductions for those who work within a company.

If your employer purchases equipment for your use during your time telecommuting, the expense is deductible on their tax return, not on yours. Fortunately, you do not have to pay taxes on these items either, assuming that they are purchased for non-compensatory business reasons. Even if you use them for personal use (such as a cell phone or laptop) you do not have to pay taxes on them, as the IRS terms such use a “de minimis fringe benefit.”

If you purchase the equipment or pay for utilities such as internet and phone and are reimbursed by your employer, you are still ineligible to deduct them. Luckily, the funds you receive from your employer to cover these expenses is not taxable income either.

Unlike in years past, you are unable to expense purchases you made for work for which you are not reimbursed. Employees are also unable to take a deduction for home office space. There are no federal tax benefits for these kinds of expenses at this time.

Independent Contractors Can Take More Deductions

Fortunately for independent contractors, business expenses that are not reimbursed are still deductible for non-employees in many cases. Self-employment tax deductions can include home office costs, insurance, depreciation on some equipment, and other business-related expenses. 

However, if the company you are contracted with reimburses equipment purchases for work or utilities, they are able to deduct these on their business tax return instead.

And as always, we recommend you discuss your situation with your tax preparer to make sure you capture all expenses allowed.