As the United States seeks to prevent the spread of COVID-19, companies have made difficult decisions to stay afloat and maintain a healthy work environment for employees. Today, millions of Americans work from home, and the ones privileged to work from the comfort of their homes are the luckiest.
In the past couple of weeks, ten million Americans have applied for unemployment benefits. This pill is hard to swallow, in the face of the economic devastation that this pandemic has caused. For workers who are still employed, this sudden change in the work-life balance has left much doubt that there will be additional compensation in the form of tax exemptions and deductions while they work from home.
If you are self-employed, you may be used to home – office deductions. But, as an employee, you wonder if you can get some deductions from expenses incurred while working from home.
With the sudden shift to remote working, people are setting up makeshift home offices everywhere, from using the sofas to real desks and even using the kitchen. But are these "offices" deductible?
To make your office tax-deductible, you must:
• Use a part of your house regularly and exclusively for work.
• Do most of your business work in your home.
To meet the requirements, you must use a designated area of your home exclusively for work. This space must not be marked by a permanent partition; however, you will not meet the requirement if you use it for professional and personal purposes.
The second requirement for the home office deduction is to prove that your home is the essential location for your business during the period in question while having other locations. It is not easy to benefit from the home office deduction as an employee, in addition to meeting the two deduction requirements for home offices, the convenience of employers test.
The convenience of the employer test
According to IRS Publication 529-Miscellaneous Deductions, you are only entitled if the exclusive commercial use of your home office is for the convenience of the employer. If you use the home office because it is practical and useful, you are not entitled to a deduction.
For more information on home office tax deductions, see publication 587 on the commercial use of your home. Here you will find information on the records to keep, the types of expenses you can deduct and the additional conditions required to be eligible.
Non-reimbursed employees' expenses
Many Americans have heard of this specific deduction, especially if they have previously worked from home. However, when the Tax and Employment Reduction Act (TCJA) was passed in 2017, many tax rules were changed, including the possibility of receiving a non-refundable deduction for employee expenses. The home office deduction is a type of employee expense that is not reimbursed.
Most employees can no longer claim an itemized deduction for uncharged expenses. However, employees who belong to one of the following job categories can continue to claim reimbursed expenses, either as a salary adjustment or as a detailed deduction:
• Armed Forces reservist.
• Qualified performing artist
• Local government employee or free basis state
• An employee with impairment-related work costs
Eligible expenses must be ordinary and necessary, which means that they must be systematically accepted and adapted to your business your profession (even if they are not indispensable or required). These tax changes are applicable until December 31, 2025.
A slightly separate set of rules applies to educators who may work from home. An elementary and primary educator may claim a different deduction for their expenses. This is a deduction of up to $ 250 in eligible expenses per year; educators do not have to specify deductions to benefit from this tax benefit.
An employee generally works from home for convenience. However, we are in a unique situation, given our mandatory social distance requirements and our current homework policies.
You are entitled to a home office deduction if:
• Use part of your house regularly and exclusively for work.
• Do most of your work in your home office.
• Show that your home office is for the convenience of the employer.
• Avoid renting any space of your for work-related services.
Does it meet all four requirements? And are you one of the types of employees listed above who can continue to claim employees' business expenses? Congratulations! You may be eligible to claim some employee business expenses.
This can be a little more complex. This IRS IRS Publication 587 flowchart can help you determine if the commercial use of your home is tax-deductible. Keep in mind that there are a few exceptions, but this will give you a good idea of your position. If you are completing Schedule C (Form 1040) to report earnings, use IRS Form 8829 - Household Expenses to deduct home office expenses correctly.
Do these tax deductions apply?
Although there are tax deductions for people working from home, they do not apply to most employees made redundant during this pandemic. As a result, you may not be able to claim costs incurred for the installation or maintenance of your home office.
It is still possible to deduct mortgage interest on your home and the property taxes you pay on your home if you specify the deductions. Still, it is better to claim a standard financial deduction instead of specifying. Even less work! And with all that is going on now, having time can be more precious.
Will COVID-19 affect your 2020 taxes if you work from home?
Most Americans are asking for it now, and the answer depends on the nature of their work. If you are self-employed, you have the right to deduct home expenses if you meet the above conditions. However, despite the mandatory nature of our current situation, most employees who currently work from home are not eligible for the tax deduction for home office expenses.
As the COVID-19 pandemic is evolving rapidly and the government response is updated regularly, we will see if there are any changes as the next financial season approaches.
Don Bell Law