THE WALL STREET JOURNAL. **** Saturday/Sunday, April 4 - 5, 2020 |B5
EXCHANGE
ments due to coronavirus ex-
penses. However, on March 31, the
Internal Revenue Service appeared
to affirm that Section 139 can ap-
ply to coronavirus payments in its
guidance on payroll tax credits.
The statement was included as
part of an answer to question No.
58 in a list of frequently asked
questions posted online.
Specialists hope the IRS will is-
sue definitive guidance affirmingand deductible by the company.
Shareholders who are also employ-
ees of an S or C Corporation can
qualify for them as well. Directors
and partners may be eligible for
these payments, although the law
isn’t clear.
Unusually for the tax code, Sec-
tion 139 cuts red tape. Payments
don’t have to be included on a
worker’s W-2 tax form, and the
company doesn’t have to document
actual expenses as long as the pay-
ments are expected to be close to
them. Complex employee-benefits
rules about which workers get
what benefits don’t apply, either.
Until this past week, the main
caveat for employers hoping to
use Section 139 was that, for tech-
nical legal reasons, it might not
apply to payments or reimburse-this position soon.
“It would allow employers to
help employees with coronavirus
expenses immediately. Until then,
companies will proceed with cau-
tion,” says Susan Mehlman, who
specializes in compensation and
benefits with Moss Adams in Seat-
tle, an early virus hot spot.
An IRS spokesman said the
agency is reviewing this issue,
along with many others related to
the coronavirus.
The other major caveat for em-
ployers who want to use Section
139 to benefit workers is to be
careful and deliberate in how they
apply it.
As with other provisions on
tax-free reimbursements, no dou-
ble-dipping is allowed. So if some
of an employee’s child-care ex-penses are covered by another tax
break, a qualified payment under
Section 139 would need to be for
expenses above that, says Gerard
Schreiber, an accountant in New
Orleans who specializes in disas-
ter-related tax issues.
Ms. Murthy recommends that
employers who use Section 139 to
help employees with coronavirus
expenses have a written policy or
program. It should define, among
other things, the specific time
period for which the benefits can
be provided; who is eligible for
payments; what costs are eligible
for reimbursement; and up to
what maximum.
She adds, “Employers should
avoid an ‘anything goes’ mentality,
because the IRS could come knock-
ing when this is over. Be prepared.”Is a Tax Break Hiding in Your Home Office?
Millions who now work remotely can’t deduct the expenses of a new computer or ergonomic chair. But their companies can.
TAX REPORT|LAURA SAUNDERS
Employers should know
the IRS ‘could come
knocking when this is
over. Be prepared.’KIERSTEN ESSENPREISbe tax-free down the road.
Third, “sell your dogs,” urges fi-
nancial adviser Allan Roth of
Wealth Logic LLC in Colorado
Springs, Colo. The market plunge
has likely reduced or erased the
embedded gains you had on your
less-attractive investments, mean-
ing you now could sell them with-
out incurring a big tax bill.
The same logic applies to con-
centrated positions—a big chunk
of shares you inherited, or stock in
the company or industry where
you work—that you’ve been locked
into by a reluctance to pay capital-
gains taxes.
You should feel “less unwilling-
ness to unwind them now that the
market is down,” says Maria Bruno,
head of U.S. wealth-planning re-
search at Vanguard Group. “You can
clean it up and improve the diversi-
fication of your portfolio.”
To ensure you’ll follow through
on these actions, turn social dis-
tancing into an asset, too. Now
that you have spare time on your
hands, tell your family or friends
out loud (virtually if need be)
about your portfolio cleanup plan
and set a date for it within the
next few days. Ask them to hold
you to it. That follows another of
the National Park Service’s guide-
lines: “Continue to talk to the bear
in low tones; this will help you
stay calmer, and it won’t be
threatening to the bear.”
When you do make your trades,
enter them after market hours, so
momentary price swings won’t
sway your resolve.
A final thought from the park
service: “Hike and travel in
groups...because of their cumula-
tive size, groups are also intimi-
dating to bears.”
No, you can’t scare away a bear
market just by grouping with other
investors. What you can do, though,
is lower your anxiety by tuning out
toxic influences urging you to trade,
time the market and make sudden
shifts in strategy. Screen out com-
mentators and analysts who can’t
think beyond this week’s headlines,
and seek out investors who focus
on the long term.HowtoSurviveaBearMarket
Take it from the Park Service: Remain calm. Get big. Move sideways, slowly.
THE INTELLIGENT INVESTOR|JASON ZWEIG
If you’re one of
millions of Ameri-
cans who are now
working from home
instead of the office
because of the coro-
navirus pandemic,
count yourself lucky: You aren’t
sick and you have a job.
Still, both you and your em-
ployer may be wondering whether
your remote work qualifies for any
tax breaks. Have you bought a
desk, a better chair or new com-
puter equipment? Can you take a
tax deduction on those improve-
ments, as well as the increased
utility costs needed to power a
new home-office set up?
The short answer is no, the em-
ployee can’t take these deduc-
tions—but the employer often
can. As part of the 2017 tax over-
haul, Congress nearly doubled the
standard deduction and repealed
some specific write-offs on Sched-
ule A. One was a partial deduction
for unreimbursed employee ex-
penses such as a home office or
union dues.
But employers can claim these
deductions, based on reimburse-
ments to the worker. The good
news for workers is that the
breaks can help employees with a
range of pandemic expenses and
the payments don’t count as com-
pensation, either for income or
FICA taxes.
The rules are confusing, how-
ever. “Even in normal times, em-
ployers often misunderstand tax
rules for benefits. Now there’s
more to know,” says Veena Murthy,
who leads the compensation and
benefits tax practice at Crowe LLP.
A simple way for many employ-
ers to help employees who have
costs from working at home due to
the pandemic is to reimburse them
under Section 139 of the federal tax
code. This law passed in the wake
of the 9/11 terrorist attacks and al-
lows reimbursements or payments
for “reasonable and necessary per-
sonal, family, living or funeral ex-
penses” due to an eligible disaster.
Note that this law allows de-
ductions for payments of “reason-
able” expenses. That seems in-
tended to be more generous than
“ordinary” expenses, the term
elsewhere in the law, says Ms.
Murthy. It could include, say, full
reimbursement of expenses for
child care as well as for a com-
puter or additional utility costs.
Under Section 139, disaster pay-
ments can be tax-free to workers
You can immediately put the sale
proceeds into a similar, but not
identical, investment. (A simple ex-
ample: Switch from an index fund
tracking the S&P 500 to a total
stock-market index fund.) That way,
you keep your investment plan in-
tact, but Uncle Sam eats some of
your loss.
Second, consider converting a
traditional Individual Retirement
Account to a Roth IRA. The amount
you convert will be added to your
taxable income this year, but the
market decline has almost certainly
reduced that. Under current law,
unlike in a traditional IRA, with-
drawals from the Roth will typicallyALEX NABAUMwhose income you have the right to
receive. The same is true—usually
without the ability to keep pace
with inflation—if you are fortunate
enough to have a defined-benefit
pension plan.
Social Security, or the company
providing your pension, could fail.
But, if it doesn’t, putting the value
of those phantom bonds on your
mental balance sheet will remind
you that your total portfolio is big-
ger than you thought and less ex-
posed to stocks than it seems.
Other advice from the park ser-
vice also applies to bear markets:
“If the bear is stationary, move
away slowly and sideways; this al-lows you to keep an eye on the bear
and avoid tripping...Do NOT run,
but if the bear follows, stop and
hold your ground.”
To move sideways, you can take
three steps after consulting your
accountant or financial adviser.
First, harvest tax losses. Sell
stocks, funds or other investments
whose market price has fallen be-
low what you paid. Think of the
resulting difference not as a loss,
but as an asset. That’s because
you can generally use it to offset
capital gains now or into the in-
definite future, or to deduct up to
$3,000 of it against your ordinary
income annually.Investors can sur-
vive a bear market
the same way hikers
survive an encounter
with a bear: Remain
calm and don’t make
sudden moves.
With some modifications, the Na-
tional Park Service’s advisory on
how to behave if you come across a
bear in the wild, available at
http://www.nps.gov/subjects/bears/
safety.htm, is a surprisingly useful
guide for investors as well.
“Make yourselves look as large
as possible,” advises the park ser-
vice. Do that in a bear market by
remembering that we all hold an
implicit position in bonds, making
our portfolios much bigger than we
normally realize—and our exposure
to stocks proportionately smaller
than we usually believe.
Let’s say you and your spouse
are 45 years old and expect to earn
$2,000 apiece in monthly Social Se-
curity benefits.
OpenSocialSecurity.com, an ex-
cellent online tool designed by ac-
countant Mike Piper, adjusts your
expected Social Security payments
for the delay until you receive
them. The $2,000 a month that you
and your spouse will each receive in
the future has a present value of
$772,235, according to OpenSocial-
Security.com.
That’s roughly what it would
cost an insurance company to pro-
vide each of you with a guaran-
teed, inflation-adjusted $2,000
monthly payment for the rest of
your lives (assuming you file for
retirement benefits at age 70 and
your spouse at 62).
So your expected Social Security
payments are like a giant phantom
annuity—a bundle of inflation-ad-
justed bonds you don’t own but
‘Keep an eye on the
bear...Do NOT run, but
ifthebearfollows,stop
and hold your ground.’