Understanding Tax Deductions for Remote and Hybrid Workers

Working remotely or in a hybrid setup has become the norm for many, but it’s also brought new questions about taxes. If you’re among the growing number of workers trading commutes for home offices or splitting time between locations, you might wonder what tax deductions can you claim.

From home office expenses to internet bills, there are opportunities to save if you know where to look. In this article, we’ll break down what remote and hybrid workers need to understand about tax deductions to help your return while staying compliant with IRS rules.

What Are Tax Deductions for Remote and Hybrid Workers?

Working remotely or in a hybrid setup comes with unique perks, but it also raises questions about taxes. One of the most common concerns is understanding what deductions you might qualify for.

Whether you’re setting up a home office, commuting part-time, or covering your own work-related expenses, knowing the rules can help you maximize your tax savings. Here are the most common deductions available to remote and hybrid workers:

Home Office Deduction

Remote and hybrid workers who use a part of their home exclusively for work may qualify for the home office deduction. This includes expenses related to a dedicated home workspace, such as rent (if applicable), utilities, maintenance, and depreciation.

To qualify, the space must be used regularly and exclusively for work purposes, and it must be the principal place of business. Employees working remotely are generally not eligible unless they are self-employed, as the 2017 Tax Cuts and Jobs Act eliminated unreimbursed employee business expenses as a deduction.

Business Use of Utilities and Internet

Workers can deduct a portion of their utility bills, such as electricity, heating, and water, if these are used for a home office. Similarly, internet expenses may be partially deductible if the internet is required for work purposes.

The percentage of deduction is calculated based on the proportion of business use relative to personal use.

Office Supplies and Equipment

Expenses for office supplies and equipment used exclusively for business purposes are deductible. This includes items like pens, paper, printers, and desks.

If equipment like computers or phones is used for both personal and professional purposes, only the work-related portion is deductible.

Travel and Mileage

Hybrid workers who travel between their home office and another workplace may deduct mileage or travel costs. The IRS allows deductions for the actual costs incurred or the standard mileage rate. Commuting to and from a primary office, however, is not deductible.

Self-Employment Tax and Health Insurance

Self-employed remote workers can deduct 50% of their self-employment taxes, as well as premiums paid for health insurance. These deductions reduce taxable income and provide significant tax savings.

Education and Training

Expenses for education or training directly related to maintaining or improving skills for a job are deductible. This includes tuition, course materials, or certifications required for a remote worker’s role. However, the training must not qualify the worker for a new career.

How to Track Remote Work Expenses for Tax Purposes

Tracking remote work expenses for tax purposes might feel overwhelming at first, but it’s an essential step to ensure you’re maximizing your deductions and staying compliant.

Whether you’re a freelancer, an employee, or a business owner, understanding what qualifies as a deductible expense and how to keep accurate records can make tax season much smoother. Let’s break down the basics and walk through some practical tips to help you stay organized.

1. Understand Eligible Remote Work Expenses

Start by identifying expenses that qualify for tax deductions. These typically include costs related to maintaining a home office, such as utilities, rent, mortgage interest, property taxes, and internet.

Other deductible expenses may include office supplies, work-related software, and depreciation of office equipment. Eligibility depends on whether you are self-employed, an independent contractor, or a W-2 employee (deductions for W-2 employees are limited under U.S. tax law).

2. Set Up a System for Expense Tracking

Establish a reliable system to categorize and document expenses. Use a spreadsheet or accounting software to record all remote work-related costs. Create categories for each type of expense, such as utilities, supplies, and equipment.

Ensure the system allows for easy identification of business use versus personal use, as only the business-use portion is deductible.

3. Maintain Detailed Receipts and Records

Save all receipts and invoices for expenses. For electronic payments, retain digital records, such as bank statements and transaction confirmations. Record the purpose of each expense, how it relates to your work, and the date of the purchase.

This documentation will support your deduction claims during tax filing or in case of an audit.

4. Calculate the Home Office Deduction

For those eligible to claim a home office deduction, calculate it accurately using one of two methods: the simplified method or the regular method.

• Simplified Method: Multiply the square footage of your home office (up to 300 square feet) by the IRS rate, which is currently $5 per square foot.
• Regular Method: Determine the percentage of your home dedicated to business use by dividing the office’s square footage by the total square footage of your home. Apply this percentage to expenses like utilities and rent to find the deductible amount.

5. Track Mileage and Travel Expenses (if applicable)

If your remote work involves business travel, maintain a mileage log or use apps designed to track business miles.

Record the date, purpose, starting and ending locations, and total miles traveled. Similarly, keep receipts for parking, tolls, and any other travel-related costs.

6. Allocate Shared Expenses

For shared costs like internet and utilities, determine the percentage attributable to business use.

For example, if you use your internet 60% for work and 40% for personal purposes, only the work-related portion is deductible. Document your calculation method to justify the allocation.

7. Review IRS Guidelines Regularly

Tax laws frequently change, so stay updated on the latest IRS guidelines regarding deductible expenses.

Visit the IRS website or consult a tax professional to ensure compliance with current rules and maximize your eligible deductions.

Common Mistakes to Avoid When Claiming Tax Deductions for Remote and Hybrid Workers

Navigating tax deductions for remote and hybrid workers can be tricky, especially with so many unique rules and requirements to consider. It’s easy to make mistakes that could lead to missed opportunities or even raise red flags with the IRS.

Let’s break down some common pitfalls and how to steer clear of them to ensure your deductions are accurate and compliant.

Overstating Home Office Expenses

One common mistake is claiming excessive deductions for home office expenses. To qualify, the home office must be exclusively and regularly used for work. Personal spaces, like a dining table or shared living area, do not qualify.

Incorrectly including expenses for non-work areas, such as the entire utility bill for the home, can lead to audits or penalties. Only the proportion of the home used exclusively for business should be calculated, typically based on square footage.

Failing to Maintain Proper Documentation

Many taxpayers fail to keep detailed records of their deductions. For home office expenses, maintain receipts, utility bills, and mortgage or rent documents.

For other expenses like internet and phone bills, document the percentage used for work versus personal use. Without accurate records, the IRS may disallow deductions, even if they were legitimate.

Misclassifying Equipment and Supplies

Confusion between capital expenses (e.g., furniture or computers) and deductible office supplies (e.g., pens, paper) is another mistake.

Equipment generally needs to be depreciated over its useful life rather than fully deducted in the year of purchase, unless it qualifies for the Section 179 deduction. Improperly categorizing these items can lead to inaccurate tax filings.

Neglecting to Allocate Shared Expenses

For hybrid workers who use their home office part-time, it’s crucial to allocate expenses proportionally. Deducting 100% of home-related expenses when the office is not used exclusively or full-time for work is a common error.

Overlooking Employer Reimbursements

Some remote workers claim deductions for expenses reimbursed by their employer, which is not allowed. Taxpayers should carefully review employer-provided reimbursements before deducting any expenses. Claiming these can trigger audits and lead to repayment of improperly claimed amounts.

Claiming Non-Deductible Commuting Costs

Hybrid workers who travel to a physical office occasionally may attempt to deduct commuting costs, which are not eligible for deductions.

The IRS considers commuting a personal expense, regardless of whether the employee works remotely most of the time.

Misinterpreting Tax Law Changes

Recent changes to tax laws, such as those under the Tax Cuts and Jobs Act (TCJA), eliminated miscellaneous itemized deductions for unreimbursed employee expenses. Many remote workers mistakenly believe they can still claim these expenses.

However, these deductions are now only available to self-employed individuals or independent contractors. Misunderstanding these rules can result in incorrect filings.

Ignoring State Tax Implications

For remote workers living in one state but working for an employer based in another, there may be dual-state tax implications.

Failing to understand state-specific tax laws, including reciprocity agreements, can lead to underpayment or overpayment of state taxes. This is especially relevant for hybrid workers splitting time between different locations.

Get Started Today With CapForge’s Bookkeeping & Tax Services

Take control of your business finances with CapForge. Our expert team makes managing your payroll simple so you can focus on what really matters—growing your business.

Partner with us today and discover the peace of mind that comes from knowing your financials are in good hands.

Send an email to info@capforge.com or contact us at 1-858-633-3573 to get started. Additionally, you can fill out the form below and we’ll be happy to attend to your needs!