NEW YORK — Stopping the spread of COVID-19 has forced many Americans to work from home. That could lead to a rise in utility and internet bills. Or, you may have had to purchase new equipment, like a computer or a desk.
For those expecting to write those expenses off on your 2020 federal tax return, think again. CPA and finance expert Dan Geltrude has a stark reality for many.
“You are not going to get any benefit from unreimbursed business expenses,” said Geltrude.
That's because as part of the Trump administration’s tax reform plan, Congress passed the Tax Cuts and Jobs Act in 2017. It eliminated itemized deductions many employees were used to under Schedule A.
So who is still eligible for this key tax benefit?
Those who are self-employed, or freelancers.
“If you are an independent contractor, which means you own and operate your own business, you are not an employee of another company, then you can get the benefit of the business expenses you are incurring,” said Geltrude. “The key distinction here is you must be operating your own separate business, it is not part of being employed by someone else.”
Additionally, if you're an independent contractor considering the home office deduction, make sure you have all your Is dotted and Ts crossed.
The work space has to be a designated area of your home, which means sitting on your couch with your laptop doesn't count! The area has to be used regularly and primarily for business. Be sure to keep detailed records - utility bills, phone bills, receipts for computer equipment purchased, etc. You can deduct the cost of your mortgage and real estate taxes related to your home office
“What is commonly done is you take an allocation for the area of your home that is strictly for business and you write off all the expenses related to that part of your home,” said Geltrude. “Sometimes, you have to use a formula, meaning a percentage of your home of which the office takes up.”
If you're ineligible to itemize deductions on your federal return, there’s another possible resource. You might want to seek reimbursement from your employer. Under IRS code section 139,
during a qualified disaster — and COVID-19 can classify as such — this allows employers to reimburse their employees for "reasonable and necessary" work-related expenses. Employers are incentivized.
“This help would not be taxable to the employee and the incentive for the employer is that it will be tax deductible for the company,” said Geltrude. “So, I do believe it’s worth making your employer aware of this tax benefit that can benefit both sides.”
An additional note for parents: there are presently no federal tax benefits for expenses related to your children’s remote learning.
Geltrude also advises you immediately notify your tax preparer of any life changes, such as loss of a job.
Reminder: stimulus checks are not taxable income, however unemployment compensation is taxable.
Be sure to have the proper number of withholdings or you might find you owe Uncle Sam come April 15.
No matter what day it is on the calendar, tax prep is a year long process, particularly in the year 2020.
“The Internal Revenue code picks winners and losers, and the way to try to be on the winner side is to make sure you’re doing the proper planning ahead of time,” said Geltrude. “If you don’t, it’s very easy to go from being a winner to a loser.”