How do taxes work for those working from home?
The COVID-19 pandemic introduced a number of changes to our day-to-day lives. One of the most significant impacts it has had on many is how we perform our job duties. For some, this means coming into work using personal protective gear. For many others, this means working from home.
However, even before the COVID-19 pandemic, the number of people who work from home as their main source of income drastically increased by 173% from 2005 to 2018. Many jobs that had to be performed in an office in the past can now be performed efficiently from home. Whether you choose this path because you prefer working from home or because COVID-19 has made it unsafe to work in an office, it is important that you understand how to plan for your tax responsibilities.
Taxes when working from home
If you work from home, you need to make sure the following are covered when filing taxes:
- Make sure your taxes are filed with the right state(s) — It is possible to work for a company based out of a different state when you work from home. However, employers are required to have their taxes withheld according to their state’s rules, not their employer’s.
You must make sure your employer has the correct address to help reduce the likelihood of a large tax bill or tax penalties. Some states may still tax out-of-state employees with a state income tax. Florida does not levy a state income tax, so out-of-state residents who work for a Florida-based company only need to worry about state income in their home state.
- Deduct business expenses — If you are self-employed and work from home, you may be eligible to deduct business expenses from your taxes. However, employees who file with a W-2 are not eligible to claim unreimbursed business expenses as tax deductible as a result of the Tax Cuts and Jobs Act of 2017. Unless changed by Congress, this will remain in effect through 2025.
- Use the correct filing document — Speaking of W-2s, it is important for you to make sure you file your taxes under the correct documentation. Many people do not have to think about this because they receive a W-2 form from their employers. However, if you are self-employed or an independent contractor, you will need to complete and submit a 1099 form to file your taxes.
If you are unsure of which documentation to use, a tax business may provide guidance or you can always talk to your personal financial advisor.
Talk to a ProVise CFP® professional about your tax strategy
Do you want to make sure you are prepared for tax season while reducing your overall tax liability? There may be a number of exemptions and deductions you qualify for that are difficult to find on your own. A financial professional can work with you to factor a tax strategy into your personal financial plan to help you reduce your tax liability and get the most out of your money.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about your tax strategy? Contact ProVise today to schedule a complimentary consultation.