Now that I’m working from home, can I deduct a home office?

By Karin Price Mueller | NJMoneyHelp.com for NJ.com

Q. My wife and I live and work in N.J. When COVID-19 hit, my wife’s office physically closed and she worked from home. Her supplies and equipment were provided by her employer. Our home is small so we had to convert one of our main living spaces into her new office. This did not require any physical changes but the area can no longer be used as anything other than her work space. She also got a work cell but has to use her personal cell also to do her job. Can we her new “home office” and use of her personal cell phone for business on our 2020 taxes?

— Looking for savings

A. There have been several changes to what and how you can deduct for a home office.

Prior to The Tax Cuts and Jobs Act of 2017, employees could deduct unreimbursed employee business expenses as a miscellaneous itemized deduction to the extent it exceeded 2% of their adjusted gross income, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said self-employed individuals and independent contractors can deduct their expenses on Schedule C, but the Tax Cuts and Jobs Act eliminated all miscellaneous itemized deductions. Consequently, employees can no longer deduct business expenses while the self-employed still can.

So, what can you do?

Kiely said your wife could approach her boss and ask if she could be reimbursed for her expenses.

He said there are two types of reimbursements.

“The first is when you submit an expense report where you list your expenses and attach receipts,” Kiely said. “In this type of reimbursement, your employer does not have to notify the IRS and you don’t have to pay taxes on the reimbursement.”

The other type of reimbursement is when your employer gives you a certain set amount per month and you don’t have to account to your employer how you spend the funds, he said. With this type of plan, your employer is required to include the payments on your W-2 and prior to 2018, you could deduct them.

“If your wife’s employer paid her for the use of the home office, this would be rent income reportable on Schedule E,” Kiely said.

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.