Archives for January 2020

 

 

Technology has made it easier to work from home so lots of people now commute each morning to an office down the hall. However, just because you have a home office space doesn’t mean you can deduct expenses associated with it. In order to be deductible for 2019 and 2020, you must be self-employed and the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with the space. There are two options if you qualify: Write off a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space. This requires calculating, allocating and substantiating actual expenses. Or you can take the “safe harbor” deduction. Only one simple calculation is necessary: $5 times the number of square feet of the office space. The safe harbor deduction is capped at $1,500 per year, based on a maximum of 300 square feet.

 

To qualify under prior law, a home office had to be used for the “convenience” of your employer. Unfortunately, the TCJA suspends the deduction for miscellaneous expenses through 2025. Without further action from Congress, employees won’t be able to benefit from this tax break for a while. However, deductions are still often available to self-employed taxpayers.

 

The number of people engaged in the “gig” or sharing economy has grown in recent years, according to a 2019 IRS report. And there are tax consequences for the people who perform these jobs, such as providing car rides, renting spare bedrooms, delivering food, walking dogs or providing other services. If you receive income from one of the online platforms offering goods and services, it’s generally taxable. That’s true even if the income comes from a side job and even if you don’t receive an income statement reporting the amount of money you made. Examples include Uber, Lyft, Airbnb and DoorDash. Unlike traditional employees, independent contractors don’t receive benefits associated with employment or employer-sponsored health insurance. They also aren’t covered by the minimum wage or other protections of federal laws, aren’t part of states’ unemployment insurance systems, and are on their own when it comes to training, retirement savings and taxes. If you’re part of the gig or sharing economy, here are some considerations. You may need to make quarterly estimated tax payments because your income isn’t subject to withholding. These payments are generally due on April 15, June 15, September 15 and January 15 of the following year. You should receive a Form 1099-MISC, Miscellaneous Income, a Form 1099-K or other income statement from the online platform. Some or all of your business expenses may be deductible on your tax return, subject to the normal tax limitations and rules. For example, if you provide rides with your own car, you may be able to deduct depreciation for wear and tear and deterioration of the vehicle. Be aware that if you rent a room in your main home or vacation home, the rules for deducting expenses can be complex. Record-keeping It’s critical to keep good records tracking income and expenses in case you are audited. Contact us if you have questions about your tax obligations as a gig worker or the deductions you can claim.

 

The IRS announced it is opening the 2019 individual income tax return filing season on January 27. Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing as soon as you can this year. The reason: You can potentially protect yourself from tax identity theft — and you may obtain other benefits, too. Tax identity theft explained In a tax identity theft scam, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund. The legitimate taxpayer discovers the fraud when he or she files a return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the valid one, tax identity theft can cause major headaches to straighten out and significantly delay a refund. Filing early may be your best defense: If you file first, it will be the tax return filed by a would-be thief that will be rejected, rather than yours. What if you owe tax? Filing early may still be beneficial. You won’t need to pay your tax bill until April 15, but you’ll know sooner how much you owe and can plan accordingly.