Will Working from Home During COVID-19 Outbreak Save You Money?

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People Are asking, “Will Working From Home During Covid-19 Save Me Money On My Taxes?”

Working from Home During COVID-19, Home Office Deduction

Most people know that the best way to reduce your tax liability is through deductions and tax credits. Even if you always hire a tax preparer to do your taxes for you after this coronavirus outbreak. One of the biggest deductions available is the tax deduction taxpayers take for home office space. During this period of isolation due to the COVID-19 pandemic, many workers must from their homes. And, these remote workers are asking whether they’ll be eligible for that additional tax benefit through the home office deduction. Unfortunately, the short answer to that question is probably “no.”

Why will working from home during Covid-19 not save me money on my income taxes?

Millions of Americans are asking to work from home as a result of Coronavirus and the need for social distancing. You have rearranged your house in order to provide yourself with a dedicated space and workable environment. Yet, it’s unlikely that you’ll be able to write off the cost on your 2020 taxes. That’s because there are specific criteria for qualifying for that credit, and being home from your job temporarily doesn’t rise to those requirements.

What Are the IRS Rules for Claiming the Home Office Deduction?

If you want to check yourself against the IRS rules, read the rules below for claiming the home office deduction:

You must have an area of your house that is set aside for work, and only for work. People who qualify will have an office, pantry, small closet, sunroom, garage or other space they use exclusively as workspace. Sitting at your kitchen island or setting up a desk in your bedroom does not qualify. Note that you cannot use that living space for any other purpose.

Do I have to Self-Employed to Claim the Home Office Deduction?

Yes, you must be self-employed to claim the home office deduction on your tax returns. There was a time remote employees were able to take the credit. That went away with passage of the Tax Cuts and Jobs Act. When that law was enacted, it eliminated employees’ ability to take deductions for miscellaneous itemized deductions – which is exactly the way that people who aren’t self-employed were able to deduct the costs of working from your house. The elimination of that ability makes no difference whether an employee is working remote temporarily because of the coronavirus or has always been working from home, the deduction is not available.

Simplified Method for the Home Office Deduction

According to the criteria above, there are a couple of ways to go about the home office deduction. That is should you do qualify for the home office deduction. One is to simply calculate the square footage of the area in your space you’re using as an office and multiply it by $5 to determine your deduction. The maximum deduction you can take is 300 square feet, or $1,500.

Direct and Indirect Calculation Method

The other option is to add up both your direct and indirect home office expenses. This is much more complex, and takes far more mental work. However, it can yield a larger deduction – especially when you’re buying equipment (which counts as a direct expense that can be a deduction in full). Next, you add those purchases to a percentage of your indirect expenses reflective of the percentage of your home that your workspace takes up. Indirect expenses are the costs necessary to simply keep your home running (gas, electricity, and other costs that don’t pertain to your work but do make your workspace workable).

Important Takeaways When Working From Home During Covid-19 Outbreak

As tempting as it is to try to leverage the fact that you’re home, and use it towards next year’s tax filing, you can be sure that the IRS will be watching for it. Remember the following essential takeaways before you decide to take the deduction:

  • Only self-employed taxpayers can take the home office deduction. Unless Congress votes on some kind of change to the tax code, remote employees will remain ineligible despite working from home being mandatory.
  • Your office must really be an office. Sitting at the dining room table while your kids are getting online lessons next to you does not count.
  • Track all expenses carefully. That means every receipt – whether it is for equipment and office supplies or your monthly electric bill.

You can take advantage of working from home during Covid-19 outbreak, even without the deduction. How? Use your extra awareness and time, (since you’re no longer commuting, right?) to monitor your expenses and see what you can do to organize your receipts and pay attention to potential write offs. The people who get the biggest tax refunds are the ones who pay attention, organize themselves , and take advantage of education about the possibilities.

Do You Have Questions About Working From Home During the Corona Virus Outbreak?

Have any questions about the home office deduction or any other tax reduction strategies? Especially when it is regard to working from home during Covid-19 outbreak? I invite you to call me, Alex Franch, BS EA, at 781.849.7200. I am an active enrolled agent with the IRS. Due to the Coronavirus you may email me at contactus@worthtax.com to schedule an appointment to drop off you tax documents at either our Norwell, Massachusetts Tax Office or Dedham, Massachusetts Tax Office locations. Tax time may be extended to July 15, 2020, but that doesn’t mean , so go online and schedule your appointment now. You may also securely upload your encrypted tax documents below.

 

For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.