Work at Home Tax Breaks Still Exist but Beware of Audits

Sep 28, 2020 | Blog

Work at Home Tax Breaks Still Exist, But Beware of Audits

Nobody wants to find themselves in need of tax-audit help, but with the recent coronavirus pandemic and its effect on how and where people work, tax problems have become more common. In certain cases, people may potentially expose themselves to an audit without even realizing they made any mistakes.

Uptick in Audits Is a Result of Taxpayers Working From Home

Many tax lawyers believe that an uptick in audits may occur due to many individuals now attempting to make use of home-office deductions. Obviously, businesses run from home have always come under Internal Revenue Service scrutiny, and those who have been audited understand how complicated the process can be. In some circumstances, simply having a radio sitting on a desk in a home office can cause the IRS to view the tax deduction as invalid.

With the havoc wreaked by Covid-19 on the American workforce, things are even more complicated. Michael Corrente, CBIZ MHM Managing Director, told FOX Business that it is now more important than ever for individuals who are self-employed to keep accurate documentation of all expenses, especially if they are claiming deductions for work-related equipment, such as computers or printers. He adds that the taxpayer always has the burden of proof, so therefore items such as credit-card bills are sometimes not enough, as the statement does not offer proof that the expense was business related.

Deductions for Home Offices Still Exist

Despite all the confusion arising from the pandemic, it is still possible for those who work at home to deduct expenses for their business. Taxpayers must proceed with caution, though, as some states have become quite aggressive regarding auditing. States such as California and New York, which are dealing with substantial economic fallout from the coronavirus, are seeking avenues through which to collect revenue. For this reason, it is possible for auditors to become relentless about honing in on those who are attempting to deduct expenses that are not truly related to their businesses.

Home Business vs Working Remotely Due to Covid-19

Numerous individuals are wondering about possible tax breaks if they have been forced to work from home because of the virus. Unfortunately, however, those who are employed by a company or a government entity are not allowed to claim home-office deductions or any expenses that arise from having to work remotely.

Such deductions would have to be written into law, but as of yet, W-2 wage earners cannot be reimbursed for business expenses, even if such expenses occurred because they were forced to work from home during the pandemic.

Additionally, as of 2018, the new tax laws prevent workers from deducting unreimbursed expenses incurred by their employment, such as mileage, uniforms, and other items directly related to their job.

According to our tax attorneys, the Trump tax cuts eliminated deductions for W-2 wage earners working out of their homes. Nevertheless, some tax breaks are still available for filers who are legitimately self-employed or who run a business from their home that does not involve working for someone else. Below are some potential deductions for home workers:

  1. Independent Contractors or Self-Employed Individuals can Claim Certain Expenses

Those who are independent contractors or who are self-employed can claim home-office deductions, but these cannot exceed 2% of their adjusted gross income. Other stringent rules are also in place, such as having a dedicated space that serves an exclusive work-related purpose. If the space is also used for recreational purposes, even after “business hours” are over, it would likely be disqualified as a deductible expense. In some cases, the IRS requests a picture of the home office to help confirm that it is not being used for any other purpose.

  1. Deductions for Office Equipment 

In certain cases, self-employed individuals may also deduct expenses for office equipment such as computers or printers. Things get difficult when the filer has to prove that such appliances are not used for personal reasons as well.

  1. Using a Business Credit Card to Keep Detailed Records

Keeping very detailed expense records is extremely important for those who wish to take advantage of the aforementioned deductions. Using a business credit card to separate expenses is one way to fine tune record keeping.

Ultimately, getting tax audit help when under IRS scrutiny and seeking the advice of a qualified tax attorney for all types of tax problems is in the best interest of virtually any taxpayer.




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