Good morning. I’m Rachel Schnalzer, the L.A. Times Business section’s audience engagement editor, back with our weekly newsletter. The deadline to file your 2020 tax return may feel like a lifetime away. But a lot of people working from home during the pandemic have been shelling out money for job-related expenses that their employers normally cover (like speedy internet access and ergonomic equipment). So it’s worth wondering: Come tax time next spring, can they get some of that money back?
Self-employed Californians may be used to writing off home-office expenses. But this process is probably unfamiliar for those who receive W-2s from their employers.
I spoke with Roy B. Goldberg, a certified public accountant from Rancho Palos Verdes, to determine which home-office expenses Californians can expect to use as tax write-offs. The following conversation has been condensed and edited for clarity.
Can Californians working from home, who are not self-employed, write off home-office expenses when they file their tax returns?
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Yes, but generally only on the state tax return. And only if your job hasn’t reimbursed you for those expenses.
If you’re working from home and getting a W-2 — unless you are a qualified performing artist, a fee-basis state or local government official, an employee with impairment-related work issues or in the armed forces reserve — you cannot write off home-office expenses on your federal taxes.
On the California tax return, you can write off home-office expenses as miscellaneous itemized deductions.
How much would you need to spend on home-office expenses to get that tax deduction in California?
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If you spend more than 2% of your adjusted gross income on certain unreimbursed miscellaneous itemized expenses, including home-office expenses, you can itemize anything that goes over that 2%. For example, if your adjusted gross income is $100,000 and you spend $2,500 on home-office expenses, the first $2,000 — that is, equivalent to 2% — wouldn’t count toward itemized deductions, but the remaining $500 could.
But it’s important to note that if you’re single or filing separately from your married partner or registered domestic partner, you need to have more than $4,537 in itemized deductions for it to make sense to use the itemized deduction option. And if you’re filing jointly with your married partner or registered domestic partner, or if you’re a qualifying widower, you should have itemized deductions totaling more than $9,074. Otherwise, you would just claim the standard deduction.
Other itemized deductions you can claim include medical expenses (though criteria must be met), real estate taxes, DMV fees, mortgage interest, charitable deductions, casualty losses from a federally declared disaster and any other miscellaneous itemized deductions.
Would it be difficult for the average person to hit that number in California?
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Yes, unfortunately. If you’re renting, it’s very difficult, unless you have a lot of medical expenses, charitable deductions or other unreimbursed business expenses. For instance, I have a client that’s a stockbroker. He has a huge amount of unreimbursed expenses that he spends on his clients, so he hits that criteria on the California side.
How does this work with home-office space? Can I write off the desk and chair I bought after beginning to work from home?
Yes. In order to deduct home-office expenses, you really need a dedicated space — not your kitchen table. But if you have a two-bedroom home and one bedroom is dedicated to business, you can write off a portion of your rent, utilities, homeowner’s insurance or renter’s insurance, and any repair and maintenance, on your California taxes. Let’s say 10% of the space you’re renting is used for home work — that’s tax deductible on the state side as a miscellaneous itemized deduction, if you exceed the standard deduction limit. In that case, you can write off 10% of the above-mentioned expenses.
What kind of documentation would you need? Should you keep utility bills around, for example?
Absolutely. You need the documentation to support the deduction. If it’s rent, you certainly need the rent checks. You should be sure to have utility bills as well.
This sounds like it could get complicated. Would you recommend working with a CPA on this process?
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You should work with a qualified tax preparer, especially the first time. If you get the hang of it after working with a tax professional, you can use the prior year as an example. Self-employed people certainly should work with a professional because typically they miss a lot of things, or conversely, they write off a bunch of expenses they aren’t actually allowed to write off.
To learn more, visit the California Society of Certified Public Accountants’ COVID-19 resource page and the IRS’ coronavirus FAQ page.
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Reader question
A reader asked us: Will contract workers still be able to receive unemployment benefits after July 31?
My colleague Taylor Avery found that the answer is yes, according to the California Employment Development Department.
In California, Pandemic Unemployment Assistance — a federal program providing unemployment benefits for independent contractors, business owners and others who are not eligible for the regular state Unemployment Insurance program — spans from Feb. 2 to Dec. 26.
The benefit payments are based on the person’s 2019 income. In California, the minimum weekly payment is $167 and maximum is $450. The program provides up to 46 weeks of benefits.
There is a benefit that did expire late this month: Pandemic Additional Compensation, a separate but related federal stimulus payment.
People receiving benefits under regular state unemployment insurance or a Pandemic Unemployment Assistance claim were eligible for additional money under Pandemic Additional Compensation. Beneficiaries of that program got — or are due to get — $600 a week on top of their base unemployment benefits from March 29 through July 25.
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U.S. lawmakers are considering options for reinstating additional weekly payments. It’s uncertain what they’ll decide and when. But ending Pandemic Unemployment Assistance early is not a topic of discussion; Californians enrolled through that program can continue to be eligible for benefits through Dec. 26.
Have a question about work, business or finances during the COVID-19 pandemic, or tips for coping that you’d like to share? Send us an email at [email protected], and we may include it in a future newsletter.
One more thing
Are you planning to travel for work or family reasons soon? Hoping to take a short, socially distanced trip in the next few months? You might be thinking about staying in a motel rather than a hotel or resort. Roger Vincent explains how motels’ outside corridors and direct car-to-room access make them particularly attractive options during the pandemic.
For the record
Last week’s newsletter said Pandemic Unemployment Assistance benefits were supposed to end at the end of this month. In fact, that federal program lasts through Dec. 26. Pandemic Additional Compensation is what ended July 25.
