With tax season upon us once more, it’s time to start thinking about how you’ll maximize your deductions. Thanks to the COVID-19 pandemic, more people than ever have been working remotely. If you’re one of the millions of Americans who spent most of the year handling work duties from your couch or kitchen table instead of a cubicle, you may qualify for different tax deductions than before. Here are our best work-from-home tax tips in Round Rock, TX.
Keep detailed records
The most important thing to remember about taking tax deductions is that you need a detailed record of your receipts and what they were for. Maintaining a written or digital log is a good way to keep track of your expenses. File receipts away with notes and proof of payment—for example, credit card statements, bank statements, canceled checks and itemized receipts. If you can avoid paying cash, do so; if not, make sure the receipt has the amount, the payee’s name and the date.
Log your mileage and travel expenses
Get in the habit of logging all the work travel you do with your personal vehicle—it might qualify for a deduction. Mileage, meals and lodging are usually deductible, as long as your employer doesn’t reimburse you. If your employer does reimburse you for a portion of your mileage, you can deduct the excess.
Home office deduction
If you have a home office, and you use it exclusively for business purposes, you may be able to deduct a percentage of your rent or mortgage, taxes, property insurance and utilities. Keep in mind that home office deductions have a higher-than-normal rate of audits, so it’s wise to consult with a tax professional to make sure all your records are in order.
Self-employed and independent contractors
If you’re an independent contractor or self-employed, you’re not considered an “employee” for tax purposes, but you can deduct many of the same things. (This, of course, means you’ll need to keep similarly detailed records.)
If you are a self-employed person, you’ll need to document your expenses on Schedule C. You’re also required to pay self-employment taxes (for income over $400) on top of regular income taxes—consider making quarterly estimated tax payments throughout the year, so you’re not stuck with a large tax bill come April 15.
Limitations on deductions
Employee expenses are listed on Form 2106, which are reported on your Schedule A itemized deductions. They must be itemized in order to claim unreimbursed employee expenses.
Keep in mind that these are part of your miscellaneous deductions, and only amounts over two percent of your adjusted gross income are eligible for deduction. That means that if two percent of your adjusted gross income is $1,000, and you have deductions equaling $4,000, only $3,000 is deductible.
Working from a home office in Round Rock, TX can make your taxes more complex. If you need assistance with your taxes, reach out to the team at Perrin Anderson Rastogi Tax Services LLC today. We’d be glad to help you!
