In general, the workforce is divided into categories, including salaried employees and independent contractors. Both groups of workers have similar deductions available to them, with a few key differences. Employees who work at home or are self-employed encompass a growing part of the workforce and are eligible for certain deductions that are unavailable to employees who work in an office.
In order to claim deductions—both for salaried employees and independent contractors—you must make sure you meet the criteria put forth by the IRS. If you are ineligible for a deduction but claim it anyway, you could potentially face penalties and additional taxes. If you are struggling to navigate the complexities of your taxes, it could be in your best interest to work with a tax resolution lawyer. A skilled tax attorney can help ensure you file your taxes correctly. Here are five considerations to remember when filing taxes as a remote employee.
Claim Your Home as a Deduction
It’s becoming increasingly common for employees to work from home, especially if employed by a company located outside their state. This usually works out as a win for both the employer and the employee, as the employer doesn’t have to pay to lease an office space and the employee has more flexibility in their workday. For tax purposes, this means that if your home office is used exclusively for business purposes, you may be able to deduct some of your home expenses, such as mortgage interest, property taxes, and utilities.
Keep Track of Travel Expenses
If you are using your personal vehicle for any business travel, track your mileage to later claim as a deduction. Additionally, if you are paying for any business travel and lodging out of pocket, you can also claim that as a tax deduction. However, if your employer reimburses you for any business expenses you originally paid for, those will not qualify for a deduction.
Save All Your Receipts
In order to claim any employee expenses as deductions, you’ll need to keep accurate records throughout the year of all your costs. The IRS recommends keeping a written logbook of how the expenses you claim are business-related in the case that any questions arise about your deductions. The best way to have the most accurate records is to keep all of your receipts from any business expenses.
Be Aware of the Limitations on Deductions
Deductible employee expenses are reported on Form 2106, which is usually attached to Form 1040. These deductible expenses are entered on your Schedule A, which lists your itemized deductions. This means that if you do not itemize your deductions, you won’t be able to subtract any unreimbursed employee expenses. Another thing to be aware of is that employee expenses fall under the umbrella of miscellaneous deductions, so they are subject to a 2% floor. This means that you can only deduct amounts that are greater than 2% of your adjusted gross income.
Use the Correct Forms for Self-Employed Workers and Independent Contractors
Although independent contractors and self-employed workers are not considered employees, they are still eligible for most of the same deductions. Self-employment income expenses are usually outlined on Schedule C. The total amount of qualifying expenses is then used to offset the income of the independent contractor or self-employed worker. Unlike Schedule A, Schedule C does not have a floor on expenses.
Consult a Skilled Tax Resolution Attorney
No one likes filing their taxes. However, understanding which expenses are eligible for deductions can help reduce your tax bill. If you are struggling to claim deductions on your taxes, you should contact a skilled tax resolution attorney. A tax lawyer can ensure you claim the maximum deductions you are eligible for without violating any of the IRS criteria.
At Morgan Sebastian Law, Attorney Becky Sebastian is eager to help you navigate the complexities of your tax situation. We understand the challenges of paying taxes while experiencing financial hardship, and we are here to help you handle negotiations with the IRS. To schedule a consultation with an experienced tax resolution lawyer, call (877) 223-6605 or fill out our online contact form.