The Bipartisan Policy Center recognizes that even “in times of economic growth, the federal government has run large and growing budget deficits, near $1 trillion per year.”
That was before the COVID-19 pandemic.
As lawmakers throw more deficit spending at the pandemic, “federal budget deficits are escalating to levels not seen since World War II.” The BPC’s deficit tracker forecasts a 2020 deficit growth to the end of FY 2020 at a whopping $3.3 trillion—three times the growth of the three previous fiscal years.
In August 2020 alone, estimates from the Congressional Budget Office show the federal government spending $198 billion more than it took in. It’s simple math. The deficit is the difference between $223 billion of revenues and $420 billion in outlays.
What has budgeters worried is that cumulative revenue for this fiscal year is down 1% from this time last year. Couple that with outlays at 45% higher and you have a reprise of the old saying, “a billion here and a billion there, and pretty soon you’re talking about real money.”
March 2020 looked promising as revenues rose 6% more than the previous year. It didn’t keep up with deficit spending, but the ledger balance took a heavy hit when COVID-19 shut down the economy and tanked the stock market.
As the fed floats more bonds and securities to pay for all the stimulus packages, unemployment checks, and outlays to small business and health providers, the IRS will be under increased pressure to staunch the flow of the red ink.
For example, with more workers headquartered at home, both the work and tax environments are undergoing change. Claiming a home office deduction is one of those notorious IRS audit flags. Workers can claim a home office tax deduction if they are:
- Use their home office regularly and exclusively to conduct their business
- Use their home office as their principal place of business (rather than on the road)
The IRS website lists allowable expenses and the methods allowed for home office tax deductions. For those who don’t want to bother with the auditable record keeping, there is the simplified method of taking a quick $5 per square foot home office deduction, up to a maximum of $500.
Home office deduction seekers who want to claim home expenses — mortgage, utilities, etc. — need to be especially meticulous. Claiming deductions for purchasing of new computers or other work equipment could attract increased audit scrutiny.
All expenses and expenditures need to be well documented, and those records should be preserved for at least three years. Credit card records alone won’t hold up to an audit, because they lack sufficient detail. As always, during an audit, the burden of proof is on the taxpayer.
Also, the pressure on tax revenue agents is likely to trickle down to states like New York and California. Both are dealing with massive budget deficits caused by the double whammy of coronavirus and the Trump Tax Bill of 2017 that capped federal deductions for state taxpayers.