If I receive a W2 and am self-employed (1099-misc) how can I deduct home office and other expenses?

[Paul2013]

I work for an employer, work from my home office in Florida, and receive a W2. I also run my own side business from the same home office.

According to the tax reform: https://ttlc.intuit.com/community/tax-reform/help/which-federal-tax-deductions-have-been-suspended-b...

It says:

"The repeal of unreimbursed work-related deductions only affects wage- and salary-earning employees who don't own a business or work as a contractor."

In this case I am a wage and salary earning employee who does own his own business/work as a contractor. Am I allowed to deduct my home office and other expenses (mortgage interest, internet, etc.) from my yearly income?

[Mike9241]

As defined by the U.S. Internal Revenue Service (IRS), "convenience of employer" generally means that an employer has not provided an employee with the necessary resources for an employee to work remotely, such as a physical office or technology, which requires the worker to provide for their own home office equipment.

under Hamacher, 94 TC 348 (1990) if you use the space as an employee, if it's not for the convenience of the employer the exclusive use test is not met and you are not allowed any home office deduction. 

other tests to be met to qualify for home office deduction

- regular use - the area used for your side business must be used on a continuing basis. occasional or incidental use does not neet this test.

- exclusive use - the area is used for business purposes only. any personal use means this test is not met 

otherwise, you take the home office deduction on Schedule C where you report your self-employment income. 

other 

[Critter-3]

If you use the same space for both the business and as an employee then you fail the exclusive use test so no OIH expenses are allowed. 

[Paul2013]

Hi @Mike9241 thank you for the response. I do not receive physical space or technology which means I have to provide my own equipment and space, which sounds like this is the "convenience of employer". 

So to confirm, I use the space as an employee and it is for the convenience of the employer, therefore it meats the exclusive use test, would that be a correct assumption?

Regards

[Critter-3]

If you are a W- 2 employee then job-related expenses were eliminated as a federal deduction by the new tax laws that went into effect for your 2018 return and beyond.    If you are a W-2 employee you cannot deduct a home office on your federal return, nor can you deduct job-related mileage, etc.

https://ttlc.intuit.com/questions/4482873-which-federal-tax-deductions-have-been-suspended-by-tax-re...

Employee job related expenses

However, if your state allows you to itemize, you may be able to claim a deduction on the state return. 

Enter all of your information in the federal section to ensure it gets pulled into your state return. 

1. Go to the Federal section of the program
2. Go to Deductions & Credits 
3. Under All breaks, select Employment Expenses 
4. Select Job Expenses for W-2 Income 
5. On the next page, you should see a page titled Review your job-related expenses info.
6. Review your input if needed.

[Critter-3]

@Paul2013

You referenced in the original post you used the SAME SPACE for both as a W-2 employee and as a SE person filing a Sch C.   Since you use the same space for  both situations  you fail the exclusive use test for the OIH deduction on the  SE income (sch C)   and the W-2 deduction (sch A ) has been removed for now  (not sure if it will return in the future... we will see what congress decides).  

[Hal_Al]

I had a relative with a similar situation, before 2018 (when W-2 employees got a deduction).  I advised him that he needed to split the deduction, based on time spent on each job,  between Schedules A & C.

I'm of the opinion (but cannot cite a reference) that if you meet the convenience of the employer test, for the W-2 work, you may still  deduct the time adjusted portion on Schedule C (self employment) since the home office was used exclusively for work (W-2 and self employment).  However, if you don't meet the convenience of the employer test, then the home office was not used exclusively for "work" and you get no deduction foe even the self employment use. 

[Carl]

The work related expense deduction for W-2 employees has been suspended starting with tax year 2018, through tax year 2026 (unless congress extends it.) Period.

There are two questions in the program that I don't know exactly how they're worded, so I'll paraphrase as best I can.

Percetage of business conducted in the home office - This will commonly be less than 100%.

Percentage of time the space is used exclusively for business use in a business that you own - This must be 100%. Anything less, and you do not qualify for the home office deduction. Period. Now you may only be in that space for 1 hour a week. But if for that one hour you are conducting business for a business that you own, it's 100% business use.  So if the kids use that space for doing their homework, playing games, etc., or you also use that space for watching football games on TV, it's not 100% business use.

Since you've clearly stated you use the space for things other than the business that you own, you do not qualify for the home office deduction.

[Mike9241]

based on my 2020 tax guide by Thomson Reuters. it in effect says as long as the use of the space as an employee is for the convenience of the employer the exclusive use test is met.    what it does not clarify is whether or not you take 100% of the Home office expenses or must prorate them based on your self-employment use to total use.    if I had to guess, since employee expenses are no longer allowed, you would have to prorate.