Tax tips, whether at home or out of work

Thanks to the coronavirus pandemic, next year’s tax season could bring some unpleasant surprises for people whose work life has been upended by office closures and job loss.

Whether working from home or unemployed, experts say taxpayers should take steps now to avoid confusion come Tax Day.

“It’s kind of a mess,” said Mark Mazur, the director of the UrbanBrookings Tax Policy Center. “The (tax) rules that have been in place for a long time didn’t contemplate the current situation.”

Here’s what to know in order to avoid headaches later on.

Can I write off the desk I just bought?

No. The Tax Credit and Jobs Act, which took effect in 2018, eliminated that deduction for workers who receive a W-2 from their employer. However, small-business owners and the self-employed can claim deductions on their Schedule C form.

“There are real business-related expenditures that wouldn’t be incurred if not for COVID and people won’t get a deduction,” said Julie A. Roin, a tax law professor at the

University of Chicago Law School.

W-2 employees can seek tax-free reimbursement from their employer for qualifying expenses. According to Roin, those expenses could include things like computer monitors, USB devices and internet service.

Illinois law requires employers to reimburse employees for necessary expenses, as long as they’re within the scope of their employment and benefited the employer.

But employers do not have to reimburse employees for normal wear and tear on items they use for work, expenses that were the employee’s fault, or if the employee did not comply with the employer’s policy.

I’m self-employed. What can I write off?

Small-business owners and self-employed workers who want to claim deductions for their home office must meet two requirements.

First, the taxpayer must regularly use the home office exclusively for work and not for any other purpose, such as homeschooling children or for hobbies.

Second, the home office must be the main place where the taxpayer conducts business. People

who conduct some business activities elsewhere can still qualify as long as administrative or management activities are performed exclusively in the home.

“You basically have to run your business out of that space,” Mazard said.

Those taxpayers may be able to deduct a portion of their mortgage interest, insurance, utilities, repairs maintenance, depreciation and rent. Or they could deduct a “simplified” amount by multiplying $5 by the area of the home used as an office, up to 300 feet.

Will I have to pay taxes in two states?

Chicago-area employers from Groupon to Uber have told employees to work from home — some indefinitely. Since the pandemic began, some Chicagoans have left their city homes for places like Door County, Wisconsin, or southwestern Michigan. Others have taken jobs with out-of-state employers expecting to continue working from home.

“It gets pretty complicated pretty fast when you have out-of-state income,” said Charlotte Crane, a tax law professor at Northwestern’s Pritzker School of Law. “Different states have different approaches to this issue.”

Illinois has agreements with Iowa, Kentucky, Michigan and Wisconsin that prevent Illinois residents from having to pay tax in those states. They still would have to file in Illinois.

For Illinois workers earning income from the other 45 states, they may be entitled to an Illinois credit for taxes paid to those states.

Are my unemployment benefits taxable?

Yes. More than 1.5 million Illinois residents filed for unemployment insurance benefits between March and July. That income, including any special coronavirus unemployment benefits, is taxable at both the federal and state level in Illinois, Illinois Department of Revenue spokesman Sam Salustro said.

To avoid owing taxes next year, benefit recipients may choose to have taxes withheld from their unemployment check. If they don’t, or if the withholding amount is not enough, recipients can make quarterly payments to the IRS. They also can change their election for tax withholding after benefit checks start arriving.

The IRS has a tax withholding estimator tool on its website to help users avoid any surprises.

What about stimulus payments?

Stimulus payments issued under the coronavirus relief legislation are not taxable. Anyone who qualifies but hasn’t received a stimulus payment can enter their information on the IRS website or claim the amount as a credit on next year’s tax return.

What else do I need to know?

One way to make next year’s tax season run smoothly is to keep accurate and thorough records in a safe space.

Anything claimed on tax returns must be documented in case of an IRS audit or examination. Some documents to look out for are stimulus payment records, coronavirus-related medical expenses, and records of any time spent earning income in different states.

“If you get a document in the mail that you think, ‘I wonder if I need this for my taxes,’ you should keep it,” Devine said. “You can always get rid of it. But if you lose it, it will delay the process.”