Working Remotely Could Affect Your Taxes

by NFS | Dec 15, 2020 | Archives, Blog Posts

When COVID-19 struck last March, employers quickly switched to a work-from-home model for their employees, many of whom began working in a state other than the one in which their office was located. While some workers have returned to their offices, many have not. If you’re working remotely from a location in a different state (or country) from that of your office, then you may be wondering if you will have to pay income tax in multiple jurisdictions or whether you will need to file income tax returns in both states.

Generally, states can tax income whether you live there or work there. Whether a taxpayer must include taxable income while living or working in a particular jurisdiction depends on several factors, including nexus, domicile, and residency.

Many states – especially those with large metro areas where much of the workforce resides in surrounding states – have agreements in place that allow credits for tax due in another state so that you aren’t taxed twice. In metro Washington, DC, for example, payroll tax withholding is based on the state of residency allowing people to work in another state without causing a tax headache. Other states such as Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania tax workers based on job location even if they reside in a different state.

Remote Working in Multiple Locations

Let’s say you live in Florida. During the pandemic a mandatory office closure allows you to work remotely from your vacation home in North Carolina – a state that is not your domicile (i.e., your home). Next spring, you will need to file a nonresident income tax return on income earned in North Carolina (your remote work location, but not your domicile) in addition to your usual tax returns.

However, in all the pandemic confusion, it’s likely that your employer may not have known you were working remotely from NC and did not withhold tax from your pay (income earned). If that’s the case, then you may owe money.

Here’s why:

If the tax rate in the remote location is higher than the taxpayer’s home state or the home state doesn’t impose income tax but the state they are working from does, the tax credit in the worker’s home state may not be enough to offset all – or any – tax owed.

• During the pandemic, 13 states have agreed not to tax workers who temporarily moved there because of the pandemic including Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, and South Carolina.
• Keep in mind, however, that these waivers are temporary and in some cases may only in effect during a mandated government shutdown. South Carolina’s waiver, for instance, expired on September 30, 2020, but was extended through December 31, 2020.

Necessity or Convenience

Another important factor to consider is whether a worker’s remote work location is due to necessity or convenience. If there is a mandatory government shutdown, then it is a necessity. If the option to go back to the office exists, but the worker chooses not to because of health concerns, then the state could view it as convenience.

Keeping Good Records

Keeping good records is always important when it comes to your taxes, but even more so when there are so many unknowns. As such, it’s a good idea to keep track of how many days were worked in each state and how much money was earned.

Help is Just a Phone Call Away

Tax laws are complex even during the best of times. If you’ve been working remotely during the pandemic in a different location than your office, then it pays to consult with a tax and accounting professional to figure out your tax liability and recommend a course of action to lower your tax bill such as changing your withholding.

Turn Your Home Office Into a Tax Deduction

by NFS | Dec 7, 2020 | Archives, Blog Posts

If you are working from home for the first time in 2020, you may be wondering if your home office is tax deductible. The bad news? If you’re working from home for an employer, you normally can’t deduct your home office expenses.

Here’s a quick look at the basic requirements to be able to deduct your home office expenses, along with some suggestions for how to qualify for the deduction if you’re currently working for your company as an employee.

The Basics

There are two requirements for having a tax-deductible home office:

• Your home office is only used for business purposes. Your home office must be used exclusively for operating your business. It can’t double as the family media center or living room. To meet this requirement, set up your office in a separate area of your house. Then if you get audited by the IRS, there is no doubt that your office is used exclusively for business purposes.
• Your home office is your primary place of business. You need to demonstrate that your home office is the primary place you conduct your business. The IRS has clarified that you can meet clients and conduct meetings at separate office locations, but your home office must be the only location where your administrative work is completed. So if you meet with clients or work on any part of your business away from your home office, keep a journal of each specific activity undertaken and describe how it doesn’t violate the primary place-of-business rule.

Looking at these two criteria, everyone that is now required to work from home probably meets both qualifications. If you’re a W-2 employee, however, you can’t deduct your home office expenses on your tax return.

Solving The Problem

Here are three options for solving your problem of being a W-2 employee and qualifying to deduct your home office expenses on your tax return.

• Become an independent contractor. The easiest way to deduct your home office expenses is by switching from being an employee to an independent contractor. With a number of firms cutting pay and hours due to the pandemic, it may be worth exploring. There’s a big warning label if you go this route, however. You will need to account for lost benefits such as health insurance, and the additional cost of self-employment taxes. If you can meet the IRS requirements for becoming an independent contractor, it may be worth doing the math and considering all the deductions your home office may make available to you.
• Start a side business. If becoming an independent contractor for your current employer isn’t an option, consider starting a side business. You can deduct all business-related expenses on your tax return, including your home office expenses. If you go this route, ensure your home office is in a different location in your home than your other work space.
• Consider your entire household. Even if you don’t qualify for the home office deduction, maybe someone else living in your home does qualify. So look into your options to see if a family member can take advantage of the home office deduction.

What if none of these options for deducting home office expenses are feasible for you? While you won’t be able to deduct your home office expenses on your tax return, you may still be able to end up financially ahead with the help of your employer.

Get Reimbursed By Your Company

There’s no question you are picking up some of the expense of your home office with added electrical, heating, telephone, internet and other expenses. One way companies are solving this is by allowing employees to submit valid expense reports to cover some of these extra costs. They do this by setting up an accountable plan. With financial pressures on businesses, this might be a tough subject to broach, but if the system is already in place you may be able to find a way to get some of your home office expense reimbursed.

So if you’re stuck working as a W-2 employee, look into whether your employer offers reimbursement for home office expenses.

Figuring out how to properly deduct your home office or get reimbursed by your employer can be a lot more completed than it appears. If you need help, please contact the office and we can help.

Support Small Business With an NFS e-Gift Card

by NFS | Nov 28, 2020 | Archives, Blog Posts

Today marks the 10th anniversary of Small Business Saturday and we are celebrating at NFS!!

Looking for that unique gift for that special someone – give them the gift of Income Tax Preparation!! The Northeast Financial Strategies e-Gift card can be used towards any of our income tax, accounting or bookkeeping services. You can purchase the e-gift card in pre-determined amounts or you can customize it with any amount you want to give. Don’t have anyone to buy for, treat yourself and pre-pay your services now while supporting small business!

Click here to order yours today!