Advancements in technology have made it easy for people to work remotely. As a result, many workers and businesses are taking advantage of how this can save them money and time when considering commuting costs, office space and more.
When tax time rolls around, remote workers will have another advantage as there are several deductions they can claim. These deductions can help them get more money back on their taxes or it can reduce the amount they owe.
If you are remote worker, read on to find out about the deductions you can claim.
Please note: You’ll have to work with a tax professional to finalize any tax deductions, these are just ideas to think about. The official IRS website has an article explaining the tax laws for Home Office Deductions too.
Home Office Expenses
If you work exclusively from a home office, you can deduct some housing expenses from your taxes. These include property taxes, mortgage interest, home insurance and some utilities.
Food and Travel
If your job requires you to travel, you can claim out of pocket expenses to cover food, gas, mileage and lodging. If your boss already covers these expenses, you will not be able to claim them.
However, you can claim excess amounts that aren’t being covered. For instance, if your employer reimburses you for only a portion of the business standard rate for travel, you can deduct the rest.
When you work from home, you may be using supplies such as your printer, printer paper, your computer, pens, paper clips and more. If your employer isn’t covering these expenses, they can also be claimed as deductions.
Keep Records and Save Receipts
In order to get deductions, you will need to keep records and save your receipts. This will serve as evidence of your expenses.
Cashed checks, credit card statements, bank statements and receipts can all be used as proof of payment. If you paid for something in cash, include the payee’s name and date of the transaction on the receipt. The IRS recommends you also keep a written log of all your expenses.
Limitations of Deductions
If you are doing your own taxes, the deductions for employee expenses must be reported on Form 2106 Employee Business Expenses. After the form is filled out, it must be attached to the 1040 Form. These are then entered into your Schedule A Itemized Deductions.
If expenses are not itemized, you may not be eligible for deductions.
Employee expenses are considered miscellaneous deductions and they are therefore subject to a 2% floor. This means that only those that are greater than 2% of your gross income are eligible to be deducted.
In other words, if your gross income is $100,000 and you have $4500 in expenses, you will only be eligible for $2500 in deductions. The first $2000 covers the 2% of your income which is withheld.
W2 Workers vs. Independent Contractors
The type of worker you are will also affect your end of the year taxes.
For the most part, workers are divided into three categories, W2, 1099 and self employed. A W2 worker will file a W2 form with their company while a 1099 worker will file a 1099 form.
W2 workers are seen as regular, full or part time employees. Typically, they work out of a specific location during set hours. Their employers pay their Social Security and Medicare expenses as well as their unemployment.
1099 workers are a type of self-employed worker. They are typically hired to do one specific task for a company. They may set their own hours and use their own tools to complete the job.
There are also self-employed workers who freelance or own their own businesses. It is up to these workers to pay their own Social Security, Medicare and unemployment. They may be 1099’d by some clients, but ultimately, it is up to them to report all their earnings.
Self-employed and 1099 workers are eligible for the same deductions as remote workers. In most cases, their expenses have not been covered by an employer so they will be able to claim everything they spend.
Self-employment income and expenses are typically recorded on a Schedule C. The full amount of the expenses is used to offset income and there is no floor on adjusted gross income.
If your self-employment income exceeds $400, you must also pay Social Security and Medicare taxes. Usually this is done on a pay as you go basis. This allows self-employed individuals to pay a little of their taxes at a time to avoid big tax bills at the end of the year.
If you are a remote worker, be sure to keep track of your expenses so you can claim as many deductions as possible. Here’s hoping you get a fat check at the end of the year.