COLLEGE PARK, Md., March 25, 2020 /PRNewswire/ -- If you admire your CPA for that unflappable aura of calm at the height of tax season — even during this unusual tax season — there's something you should know.
"That's just a facade," says Samuel Handwerger, a practicing accountant and full-time lecturer in the department of accounting and information assurance at the University of Maryland's Robert H. Smith School of Business. "When you put the fear of the virus, the economy, and the future all together in one moment in time, it's a formula for something not at all reposeful."
In his less-than-tranquil free moments, Handwerger decided to focus not on all of the economic and societal uncertainties brought by the global pandemic, but instead on what he knows to be true. Here's the advice he's giving to his clients, and anyone else who needs to hear it.
First, watch out for cybercrime. "It is a rather sad part of our world at large. Even at times like this, there is an evil element waiting to take advantage of people," he says. Bogus charities already exist, asking you for money for the coronavirus crisis – whether for cures or to help people in need. Do yourself and your money a favor, he says, and give only to registered charities as found on guidestar.org or the IRS website.
Understand what's tax-deductible. Understand that a legitimate charity can raise money for a particular individual or family, but money donated with such in mind is not tax deductible. In essence, it is considered a gift to the person(s) so named. The charity should so inform you.
Prepare for jobless benefit taxes. Many companies may be laying off employees, some of them just temporarily. These workers will be eligible for unemployment compensation. But they should remember that these monies are taxable. No withholding tax will be taken out initially, but the income will be reported later, and tax may be owed next tax filing season. Budget accordingly, if you can.
Be careful tapping into savings. In a financial crisis, you may look to your retirement account for money. If you are under age 59 and a half, pulling money from retirement might be not only taxable, but also subject to a 10% penalty. There are possible exceptions to the penalty, depending on the kind of retirement account you have and the reason why you require the money. "Understand that needing the money just to pay the rent might not avoid the penalty, no matter how desperate that sounds," Handwerger says. Take money first from a Roth IRA that has been funded for at least five years or from non-retirement savings.
Know the costs of working from home. Many of us are working from home for now. Prior to the tax law changes made by the TCJA of 2017, the costs incurred while working from home for the convenience of the employer may have been tax deductible, subject to certain limitations. The TCJA eliminated all of that for employees. The self-employed can more easily deduct home office type costs. If you are an employee and can convince your employer to reimburse you for your trouble to work from home, the employer need only establish what is called an "accountable" plan and it will be tax deductible to the employer and not taxable to you. "This could be a great way to create a little happiness within the dark cloud. The types of costs eligible for this often do not add up to much, but, hey," Handwerger says, "every little bit helps." Examples may include a portion of your utility costs, internet fees, cellphone use, supplies and so on.
Count your added childcare costs. If you need to hire someone to come take care of the kids while you work from home, these costs will invariably be eligible for the childcare credit or for reimbursement from a childcare program at work, if your employer has one. Remember that eligible caregiving employees can include certain family members, such as grandparents, but, Handwerger adds, "given the health risks to the elderly (like me!) this is probably not the right thing to do to those grandparents just for a tax break!"
Take a deep breath. The IRS last week announced that tax returns are not due on that infamous April 15, rather both the returns and any payments due, including the 1st 2020 quarter estimates, are due July 15th, 2020. "Hopefully," Handwerger says, "it will ease some stress in an otherwise stressful period and help us all appear a bit more serene – if only from the outside."
Go to Smith Brain Trust for related content at http://www.rhsmith.umd.edu/faculty-research/smithbraintrust and follow on Twitter @SmithBrainTrust.
About the University of Maryland's Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty masters, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.
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