That home office tax deduction may not apply to you. Here's who qualifies

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If you took advantage of your company's flexible work from home policy last year, don't be surprised if all those receipts you diligently kept all through the year for tax deductions end up in the bin.

That's because wage employees who choose to work from home take on the full weight of their related expenses, tax experts say. And some of those expenses can add up. A survey by credit card comparison site creditcards.com in 2020 said people working from home spent an average of $108 more per month, led by higher expenses for food and utilities.

The 2017 Tax Cuts and Jobs Act eliminated unreimbursed itemized deductions for employees, and Congress never brought them back despite a surge in people working from home. The rule runs through 2025, said Eric Scaringe, principal at certified public accounting firm UHY.

Among those who have a workplace outside of their home, 35% said they never enter their offices, down from 43% in January 2022 and 55% in October 2020 but up from only 7% before the pandemic, according to Pew Research Center. Forty-one percent split their time between home and office, up from 35% in January 2022, it said. Despite all that work at home, most of them likely aren't eligible for any home office deductions.

Home office deductions only apply to small business owners who are self-employed. If you do freelance work unrelated to your regular job at home, you might qualify. The rules are strict, though, and calculating your deductions can be complicated.

Here’s a step-by-step guide for figuring out if you qualify for deductions and if so, what to consider in your calculations:

Who qualifies for home office deductions?

Generally, if you receive a W-2 wages tax document, you’re not eligible unless you also have a side gig that you do from home - at least on the federal level.

"Some states might allow you to take some deductions," said Mark Jaeger, vice president of tax operations at preparer TaxAct.]

Pennsylvania and New York, for example, allow employees to deduct some unreimbursed expenses. Check your state's rules.

Self-employed: If you're self-employed and use your home office exclusively and regularly for that work, you may be able to deduct from your federal taxes a portion of home-related expenses, such as mortgage interest, property taxes, homeowners' insurance, and utilities.

But be mindful of details, experts say.

“If you work on your dining table, you can't deduct that because it’s not used exclusively for work,” said Therese Tippie, EP Wealth Advisors’ tax manager and financial planner. “But you could purchase a desk and have it in a corner of your house and if that’s used exclusively and regularly for work, you can deduct that space.”

There are two ways to take a deduction for your home office space: simplified or regular.

Simplified home office deduction

You can deduct $5 per square foot, up to $1,500 or 300 square feet, a year for your exclusive home office space -- if it's used for the full year. If you only use that space part of the time, then you prorate that amount, Tippie said.

Regular direct home office deduction

This could result in a larger deduction. However, it requires you to track all your home office expenses, including any costs for repairing and maintaining the space.

“If you have a spare bedroom and made repairs to turn it into an office -- added built-in shelving, painted it to get it ready for Zoom meetings ... all that can be counted toward home office expenses,” Tippie said.

You can also claim deductions for a portion of other expenses such as rent or property taxes, home depreciation, and utilities -- based on the proportion of the space to the rest of your house.

For example, if your office is 250 square feet and your home is 1,000 square feet, you'd deduct 25% of your allowable expenses (250/1,000 = 0.25). If you had $10,000 in eligible home-related expenses, you could claim up to $2,500 in deductions. There isn’t a limit on how much you can deduct.

Can I deduct supplies?

Yes, if they are both common to your industry and necessary to help your business -- and you have receipts.

Items you might deduct include cell phones, laptops, printers, and other office supplies.

“Given the value of these items, you can just write off the entire amount and expense it,” Tippie said. “You don't need to capitalize it. It would go on Schedule C as office or supplies expense in the other expense section.”

Remember, though, if you also use any of these items for personal things, only the proportion used for work should be deducted. For example, if you buy a $2,500 laptop but use it 40% of the time for work, you can write off $1,000.

Business lunch tax deduction reverts to half

As of Jan. 1, 2023, companies had to go Dutch. The business lunch deduction reverted to the pre-pandemic 50% in 2023. The Taxpayer Certainty and Disaster Relief Act of 2020 temporarily boosted the business deduction for food and beverages to 100%, including tax and tip, for 2021 and 2022.

Note, entertainment expenses are not deductible and haven’t been since the Tax Cuts and Jobs Act in 2017, the IRS said. If you take someone to an establishment that offers entertainment and food, you must separate the food from the entertainment cost and only deduct that portion.

Is there any way for W-2 wage workers to get some money back for business expenses?

Not through your taxes, but you might be able to ask your employer.

"You can try to get your company to pay for it if they require you to work from home,” Tippie said. "They can reimburse you and deduct it, but then, some might just require employees to come to the office.”