• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube
Big Ideas for Small Business logo

Barbara Weltman

Big Ideas for Small Business, Inc.

Whitepaper download

Subscribe and download our eBook, "150+ Tax Deductions for Small Business A to Z."

This field is hidden when viewing the form
Get the:

  • Home
  • About Us
  • Big Ideas For Your Business
    • Idea Of The Day ®
    • SMB Legal
    • SMB Taxes
    • SMB Financial
    • Small Business
    • Newsletter Archive
  • Services
  • Books
  • Blog
  • Multimedia
    • Videos
    • Radio Shows/Podcasts
  • Be a Guest Blogger

Working from Home Due to COVID-19: Tax Implications

May 14, 2020 / By Barbara Weltman

If you are self-employed and conduct business from home, you may be eligible to take a home office deduction. There are strict tax rules governing eligibility. But stay-at-home orders may allow for a partial year deduction in some cases. This is my educated guess (it’s not tax advice; it’s provided for information purposes only).

Working from Home

Basics of the home office deduction

To claim the write-off, you must use a portion of your home regularly and exclusively for business. A spare bedroom or an undisturbed corner of a family room used only for business is fine; the kitchen table where you have meals is not.

The home must also be the principal place of business, a place to meet or deal with patients, clients, or customers in the normal course of business, or a separate free-standing structure (e.g., a workshop or studio in a barn). To be a principal place of business, you can’t have another fixed location, such as an office or retail store. But if you can’t access those in another location due to state-mandated business closures or stay-at-home orders, you may be eligible for a home office deduction for the portion of the year you work from home. At least, this is what makes sense to me.

Partial home office deduction

There are two ways to figure the home office deduction: writing off actual expenses allocated to the home office area or using an IRS-set simplified method of $5 per square foot up to 300 square feet of space.

In IRS Publication 587, it says in regard to figuring the simplified method that “if your qualified business use was for a portion of the year…, your deduction is limited to the average monthly allowable square footage. You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. …[I]f your qualified business use was less than 15 days in a month, you must use -0- for that month.”

The following is an IRS example modified by me for the COVID-19 situation.

Amy normally runs a boutique on Main Street but closed up shop to sell online from her home on April 1, 2020, because of state orders. She used 420 square feet of her home regularly and exclusively for a qualified business use. She continued to use the 420 square feet until the end of the May (two full months). Her average monthly allowable square footage is 50 square feet, which is figured using 300 square feet for each month, April and May, divided by the number of months in the year ([0 + 0 + 0 + 300 + 300 + 0 + 0 + 0 + 0 + 0 + 0 + 0]/12). Her deduction is $250 (50 sq. ft. x $5).

Real estate taxes and mortgage interest

What happens with your real estate taxes and mortgage interest as a result of COVID-19 may impact your 2020 home office deduction if you use the actual expense method.

  • Real estate taxes. It’s not likely that the amount of taxes due in 2020 will change, but depending on your location, you may have additional time to pay them. Check with your city or county on the deadline for paying your property taxes. Of course, if home values decline, property taxes for 2021 may lower, impacting a home office deduction for that year if you’re eligible to claim it then.
  • Mortgage interest. If you obtain a deferral for payments, this will reduce your home office deduction for 2020.

Multistate taxes

Usually, if you live in one state but work in another, you must pay a portion of income taxes to the state in which it was earned. However, if you’re forced to work from home for a while, there may be a loophole to avoid paying any tax to that other state for this period. If there is a “necessity” to work from home, you likely don’t have to allocate any income to the state where you usually work. Allocate all of the income during the period of working from home to your home state. For example, you live in New Jersey but have an office in New York. Typically, you’d allocate your income to pay some New York income taxes. But it’s likely you won’t have to do so for the days you’ve been kept in New Jersey because of state mandates. Watch for more guidance from states on these allocation rules.

Final thought

The IRS hasn’t issued any guidance on the impact of COVID-19 on the home office deduction. And states haven’t done so with respect to income allocations for state income tax purpose. All you can do is to monitor further developments on these matters.

Tags COVID-19 home office deduction stay-at-home orders working from home

Primary Sidebar

Categories

  • General Business (498)
  • Guest Blog (109)
  • Homepage (21)
  • Small Business (990)
  • SMB Financial (322)
  • SMB Legal (66)
  • SMB Taxes (324)

Barbara’s Recent Posts

  • Scale Your Business by Stepping Up IP Protection May 29, 2025
  • Disasters Happen: It’s Important to Be Prepared Now May 27, 2025
  • How Work Order Software Transforms Small Business Operations May 26, 2025
  • The Numbers Are Up for Sole Proprietorships May 22, 2025
  • New Business or Project Crowdfunding: What To Know May 20, 2025
  • Old-School Estimating vs. Smart Solutions: What’s Really Holding You Back? May 19, 2025
  • Employees Getting Called to Public Service: What to Know May 15, 2025
  • Not Too Late to Prep for Summer Now May 13, 2025
  • How Will the Next Generation of Learners Affect the Workplace May 12, 2025
  • Moms Know Best: Lessons for Entrepreneurs May 8, 2025
  • Mental Health Challenges in the Workplace May 6, 2025
  • Let’s Celebrate Small Business! May 1, 2025
Awarded Top 100 Small Business Blog medal (link will open in a new window or tab)
Marquis Who's Who 2023 Badge
Top Small Business Blogs (Link will open in a new window or tab.)
8 Financial blogs small business Owners Need to Read. Invoice home.  (link will open in a new window or tab)
Best Small Business Blog, Expertido.org
Top 50 Small Business Blogs 2018
Best Small Business Blogs
BizHumm Top 100 Business Blog Award to Barbara Weltman
FitsSmallBusiness.com: Award for Best Small Business Blog 2017 (link will open in a new window or tab)
FitsSmallBusiness.com: Award for Best Small Business Blog 2016 (link will open in a new window or tab)

Footer

Big Ideas for Small Business logo

Small business ideas, business tax news and small business consulting from Barbara Weltman to provide business owners with the information they need to succeed. Visit our small business blog, Idea of The Day®, small business books and articles on small business taxes, small business finance and small business legal advice.

Contact Us

[email protected]

(772) 492-9593

gacor maxwin situs slot thailand terpercaya situs slot gacor situs gacor akun pro thailand slot bandar togel terpercaya

Latest Tweets

bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
June 1

Financial Literacy: What Owners and Employees Need to Know - #smallbusiness #finances #bookkeeping #accounting

Reply on Twitter 1929296985539960969 Retweet on Twitter 1929296985539960969 Like on Twitter 1929296985539960969 Twitter 1929296985539960969
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
June 1

Retiring at 70? Why Older Workers Aren’t Clocking Out Yet https://bit.ly/4iCVYZJ #retirement #workplace #workforce #smallbusiness

Reply on Twitter 1929185254910128416 Retweet on Twitter 1929185254910128416 Like on Twitter 1929185254910128416 Twitter 1929185254910128416
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
May 31

Starbucks Rediscovers Its Human Side - Branding Strategy Insider https://bit.ly/3H9KwHP #smallbusiness #branding #marketing

Reply on Twitter 1928884285445931367 Retweet on Twitter 1928884285445931367 Like on Twitter 1928884285445931367 2 Twitter 1928884285445931367
Load More

Copyright © 2008–2025 Big Ideas for Small Business, Inc  |  Designed by Hudson Fusion

  • Privacy Policy
  • Sitemap