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Tax Deductions for Working at Home

The global pandemic of 2020 pushed many businesses to allow their employees to work from home. Many companies look for postponements, cancellations, potentially staff illness, and lockdowns during these difficult times. Many people are looking for tax deductions for working at home. However, getting the tax break is not as simple as it may seem. Here’s some information to consider before trying to get a tax deduction for working at home.

Self-Employed Taxpayers and Independent Contractors

            According to Barbara Weltman, the owner of Big Ideas for Small Business, she states, “If you’re an employee filing taxes between 2018 and 2025, you cannot claim the deduction.” The 2017 Tax Cuts and Jobs Act says that an employee cannot include unreimbursed business expenses if they worked from home at their employee’s convenience. However, the Internal Revenue Service (IRS) claims that self-employed taxpayers and independent contractors are entitled to the deduction. Additionally, individuals earning money in a gig economy can potentially claim the credit, such as a person who is an employee and a gig worker on the side. Many states such as Arkansas, California, Hawaii, Minnesota, New York, and Pennsylvania will let employees take deductions on home office expenses.

Eligible Individuals

            As explained by the IRS, individuals who are exclusively and regularly using their home as a place of business can receive the tax deduction. Unfortunately, a spare bedroom or detached garage used only a few times throughout the year may not fit in exclusive and regular quota. It is important to understand that an audit’s stresses do not compare to the benefits of a deduction. The best thing to do is take a picture of the workspace to present evidence to the IRS.

Two Types of Deduction

            There are two types of tax deductions that an individual may receive depending upon a few elements. Firstly, there is a simplified method that offers a deduction of $1,500 to taxpayers. It requires filling out a Schedule C document, which asks the total square footage of a home and the space being used as a business inside the house.  The IRS will conduct an equation of $5 per square foot, making a home office space of 300 square feet have a tax break. Schedule C’s benefit is that a tax filer does not have to keep evidence of home office expenses.

The other tax deduction can be a tremendous tax saver for people who have been working from home for a long time. IRS Form 8829 is where you show your math in claiming the deduction by adding business expenses like rent, utilities, renters’ insurance, and improvements to space. Some self-employed taxpayers may be losing money by choosing the simplified method.

Conclusion

            Receiving a tax deduction is always a great way to save money. However, there are some specific requirements that people working from home need to meet. Also, taxpayers who are patient can find themselves with more money in their pockets. For more useful information, you can contact MARIELA RUIZ, CPA, PLLC. We specialize in all helping individuals and businesses financially thrive. For many years we have offered various services, including forensic accounting, tax services, financial consulting, bookkeeping, and much more. Our many years of experience ensure that you’re in good hands. Visit our website to contact us today!

Steps to Take Before Filing Your Taxes

Before you contact your tax preparer, ensure you have the necessary documents to hand over. It’s important to have previous year’s tax information, as well as current receipts and documents. Getting an early start on gathering these items will not only speed up the process, but give your tax preparer more time to double check all of your information. Learn more about which forms you will need to file a complete tax return.

The Essentials

Forms from employers, banks, and other businesses need to be filed your tax return, so have these documents ready to go. Some of the most common forms include Form W-2, Form 1099, and Form 1098. These documents indicate the income you’ve received from the previous year. If you are unsure about which documents need to be filed, get in contact with your tax preparer for confirmation.

The Receipts

Receipts act as a form of proof to show so you can properly itemize your deductions. Whether you choose itemize or claim the standard deduction, it’s a good idea to compare your findings and see which one has the greater write-off. Your list of expenses may include anything from medical costs and mortgage interest to charitable contributions. Consult with your tax preparer if itemizing is worth it.

The Tax Return from Last Year

Grab your tax return from last year, even if you are using the same tax preparer. You can look over it for any inconsistences and ensure your current tax return is up to date. It can also provide details about forms you received from last year, and that you have these forms from this year too. Investopedia also comments, “If you made small gifts, you may not have received any acknowledgment from the organization, but you can still deduct these contributions as long as you have a canceled check or other proof.”

Conclusion

The process of filing taxes can be confusing, so let our certified public accountants do the work for you. We are here to prep your tax documents and handle all forms with the utmost professionalism. Refer to MARIELA RUIZ, CPA, PLLC for tax preparation services today.