Tax Tips for Working from Home during the Coronavirus

Many of us are now working from home due to the COVID-19 pandemic.  Many of the major cities in the United States are on lockdown, and it is expected that many are to follow. Are there any tax tips for working from home during the coronavirus? Read on to find out.

Now that I’m working from home, what should I track for tax deduction purposes?

After you have made sure you and your loved ones are safe and prepared, you may start to think about other things such as the tax implications of working from home during the coronavirus. The first task is to familiarize yourself with the IRS definition of what qualifying home offices are. Don’t assume you will be eligible for deductions or working condition fringe benefits just because you are working from home. 

Whether you are an employee or you are self-employed, there are certain things to be tracking for tax deduction purposes if you are working from home during the coronavirus.

Employees

Under current law (Tax Cuts and Jobs Act of 2017), unreimbursed employee expenses are not deductible – with a couple of exceptions such as Armed Forces Reservists and Educators. But that doesn’t mean you can’t get reimbursed by your employer.

For employees working from home, track everything you are spending money on related to working from home. When all this settles down, try to get reimbursed by your employer. In this scenario, your employer gets the tax write off, and you get “made whole” as a non-taxable reimbursement. 

What should you be tracking? Keep an accounting of direct expenses for use of your home like repairs, supplies, total utilities/insurance/rent (so you can allocate a percentage of this later), along with evidence of the expenses and payments.  We suggest also tracking travel costs/mileage, software purchases, and anything else that comes up as an incidental expense, just in case you’ll need this later.  Employees cannot be reimbursed for depreciation, interest or taxes as a consequence of the work they are doing at home.

Self-Employed

If you are a self-employed home office user, you are probably familiar with the rules already from going through the tax return preparation process in the past.  Either your business entity/corporation pays for the rent, or you get a write off on a percentage of an expense that covers your entire home, or all of an expense solely related to the home office. 

Examples of these expenses are:

·       Mortgage interest/Rent

·       Real estate taxes

·       Home repairs/maintenance (track whether for the entire house or just home office space)

·       Utilities

·       House insurance

·       Security system

·       Depreciation

·       Other expenses such as garbage removal, snow plowing, etc. (except landscaping)

This article is intended to serve as a general guideline; in no way may it be interpreted as advice applicable to any particular individual. If you have any questions on tax tips for working from home during the coronavirus, please contact us. 

Contributor

Chris Jaccard, CFP®, CFA is a lead advisor with Financial Alternatives in La Jolla, CA. When he’s not working on home improvement projects or trying to keep up with his kids, he loves to help successful families consider their alternatives and make better financial choices with the EXPERT™ Advisory Process. Schedule a time to chat about your situation or the latest project.