This year has been different for many reasons.
As Covid-19 outbreak continues, many employers are continuing to encourage or require employees to work from home. Such remote working arrangements could potentially have tax implications that should be considered. In most cases if the work takes place in a different state and it would be considered of a transitory nature, you would not have changed your domicile. You can have only one domicile at a time and retain that domicile until acquiring another one somewhere else.
While the nature of home may not be affected by COVID, use may be: e.g., non-resident taxpayer spending time in a different state rather than house or apartment in home state.
If you live in one state and then decide to relocate to work in a safer location, you need to comply with all state tax obligations as you may have liability in both states.
Certain tax credits are available to minimize taxation of the same income in two different states.
Occasionally, neighboring states have reciprocity agreements which dramatically simplify income tax filings. You should have a discussion with your tax professional to see what your obligations might be in 2020.
Look for some guidance from your payroll department or HR personnel as another possibility. Do not wait until April to have a discussion with your tax accountant as they will be deep into tax season.
Did you set up a home office in 2020? If you are an independent contractor and self-employed individual, who use their home for business you may be eligible to claim a home office deduction. This deduction is available to both homeowners and renters and allows qualifying taxpayers to deduct certain home expenses on their tax returns (thus reducing the amount of a taxpayer’s income).
Unreimbursed business expenses of an employee, however, including those maintaining a home office are no longer deductible as miscellaneous itemized deductions for tax years 2018 through 2025 due to the suspension of such deductions by the Tax Cuts and Jobs Act (TCJA).
All is not lost as many employers have established an accountable plan to reimburse employees work related expenses such as cell phone expense and internet services. I forecast changes in this area in the years ahead as the trend has been established for more people to work from home. Stay tuned for news in this area in 2021 and beyond.
Other areas to look at for 2021 is to review your W-4 withholding, especially if you are under withheld and owe on April 15th. Someone said. “Preparing a W-4 is like throwing a dart a board of numbers”.
Review your withholding and make corrections now. Do a projection of your 2021 income and tax. If a new tax law is enacted in 2021 with the new Administration, it is even more incumbent to do it earlier rather than later.
New for 2020-Use the above the line charitable deduction. Everyone is entitled to a charitable deduction this year. The TJCA double the standard deduction while repealing or limiting many itemized deductions.
Typically, there is no tax benefit for giving to charity unless you itemize deduction. However, the CARES Act created an above the line deduction of up to $300 for cash contributions from taxpayers who do not itemize. If you would like to take advantage of this provision, make sure to donate before the end of the year.
Understand the impact of your stimulus check. The CARES Act directed the IRS to issue stimulus checks of up to $1,200 per taxpayer and $500 per qualified child dependent. The payments were paid based on 2018 or 2019 return information.
The Stimulus check is actually structured as an advance of 2020 tax credits. Look for a schedule or area on your return with this information. If the calculation is less than you received, there is no claw back.
If you received less than the credit for 2020, you could claim it as an additional refund. Give the Economic Impact Payment (EIP) amount to your tax preparer for the correct determination for your return.
Both individuals and businesses are encountering an uncertain tax landscape in this new teleworking world. My next article will focus on the solo self-employed teleworker and such things as home office deduction, Solo 401K, Equipment depreciation and other tax benefits. If you have any questions about how teleworking is impacting you and your taxes, please let us know and we can connect you with Wayne Eichler (firstname.lastname@example.org).