These tax breaks could help you deal with the financial fallout of the COVID-19 pandemic
The COVID-19 pandemic and economy lockdown measures have changed many aspects of daily life, possibly permanently. No surprise there.
Less obvious are some of the tax breaks and other benefits that might help you deal with the pandemic. Programs and resources like stimulus payments have received a lot of media attention, but others aren't so obvious.
More people are working at home, and that is a trend that likely will continue. But does this represent an opportunity to deduct expenses related to having a home office? Possibly.
Here are some personal finance tips that might make living in a coronavirus world less disruptive:
Home-office deductions are limited
Prior to federal tax-reform legislation enacted in 2017, unreimbursed employee business expenses could be taken as an itemized deduction, but that's no longer the case. But at the same time, employees who receive reimbursement from their companies for home office expenses don’t need to pay taxes on the money, noted tax researcher Wolters Kluwer Tax & Accounting in a recent commentary.
An employer should have an “accountable reimbursement plan" to help make sure reimbursements aren't taxed. In essence, that means "employers should require receipts to be submitted and reimburse employees based on those receipts," said Mark Luscombe, principal federal tax analyst at Wolters Kluwer.
Self-employed individuals, as in years past, typically can deduct home office expenses.
On a related note, federal tax law allows a $250 deduction for teachers of expenses that they incur out of pocket. While the law cites classroom expenses, the break likely is also available to teachers who are instructing students remotely at home, Luscombe said.
Home improvements might qualify
Remodeling projects are on the upswing, with more people working at home having the time and even the money to update their dwellings. Some projects are directed toward creating more comfortable or efficient spaces to work or for home schooling. Tax laws offer some incentives for certain remodeling projects, but these benefits are limited.
One possibility is a $500 federal tax credit for energy-efficient improvements involving exterior doors, windows, insulation, heat pumps, fans, air conditioners, water heaters and so on. However, this is a lifetime credit, and many homeowners have already used up their allotment. The credit expires at the end of 2020, though it has been extended in the past, Luscombe noted.
There's also a tax credit to install qualified equipment for solar water heaters, small wind-energy generators, geothermal heat pumps and more. This credit is worth 26% of relevant expenses if incurred this year and 22% in 2021.
Some home improvements might qualify for an itemized medical expense deduction. Examples include wheelchair ramps, handrails, or other equipment if prescribed by a doctor. Medical expenses may be deducted to the extent they exceed 7.5% of a person's adjusted gross income this year, but that rises to 10% in 2021.
With a home equity loan, the interest can be deducted if the proceeds are used for home improvements, as opposed to paying off credit card debt or other purposes.
HSAs offer health spending flexibility
Health Savings Accounts were gaining traction even before the virus hit, largely because they offer a way to save up money and avoid paying taxes if the proceeds are used for an array of medical-related expenses. Given that health care spending needs could rise for a lot of people down the road, these flexible, versatile accounts could come in handy.
You can qualify for an HSA if you enroll in a high-deductible medical plan – something to consider during open enrollment.
The many COVID-19 expenses that trigger tax-free withdrawals include doctor visits, lab tests, prescription drugs and over-the-counter remedies for flu symptoms. However, respirators and face masks are among coronavirus-specific expenses that haven't yet been approved by the Internal Revenue Service, reports Fidelity Investments.
Researcher Morningstar calls HSAs "the most tax-favored investment vehicle" out there. Unlike with 401(k) accounts, Individual Retirement Accounts and Section 529 college-savings plans, the money invested in HSAs isn't taxed on the way in or the way out, and payroll taxes don't apply either, Morningstar said.
Yet HSAs also are significantly underutilized and possibly misunderstood, the company added. They are one type of account worth researching further.
Remote interviews becoming common
If you're searching for employment, here's a job-hunting aspect you might have overlooked – the virtual interview. Owing largely to COVID-19 social-distancing precautions, more employers are discussing openings with job candidates using Zoom and other online methods, reports Challenger, Gray and Christmas, which found that 80% of employers were conducting some interviews online as of an April survey.
The outplacement and business coaching firm recommends several tips to make your remote job interview more successful. First, understand the parameters of the interview including how many people will be participating, how long will it last, what software will be used and what you should send in ahead of time, such as a résumé.
Also, rehearse in advance by having a friend ask practice questions so that you can see yourself on camera, evaluate your answers, become more comfortable with your mannerisms and check the background. Move to another room or adjust your lighting if it's too bright or if shadows are distracting.
"Experiment to see what looks best," Challenger, Gray said in a commentary. "No messy work areas, laundry, or accumulated dishes" should appear in the background.
Dress in business attire with solid colors that are less distracting than patterned clothing, the company added. Also, make sure your hair, including any facial hair, is neat and trimmed, and practice your delivery so that you're not touching or fussing with your hair.
Stimulus payments still available
As Congress has debated another round of COVID-19 relief payments, it's easy to forget that money from the original program is still available.
Most eligible taxpayers already received Economic Impact Payments of up to $1,200 per person months ago. But many people who don't normally file income tax returns still might be eligible, though they must register by Nov. 21. To do so, go to irs.gov and look for a section titled "Non-Filers: Enter Payment Info Here."
This "non-filers" section is designed for single people with incomes below $12,200 who can't be claimed as someone else's dependent and for married couples with income under $24,400. Many homeless individuals could be among those still eligible for stimulus payments.
Reach Wiles at firstname.lastname@example.org.