Finance
Betterment Investing Review: Make Investing Automatic
Our expert and honest review of Betterment Investing, a robo-advisor that tailors your investments automatically based on your goals and risk preferences.
The post Betterment Investing Review: Make Investing Automatic appeared first on Good Financial Cents®.
Still Waiting on Your Second Stimulus Check? Here’s How to Track It
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
5 Things to Know About the Home Office Tax Deduction and Coronavirus
Since the coronavirus quarantine began, many people have been forced to work from home. If you didn’t have a home office before the pandemic, you might have had a few expenses to set one up. I’ve received several questions about what benefits are allowed for home offices during the COVID-19 crisis.
One question came in on the QDT coronavirus question page. Money Girl reader Ian said:
"I have a question about next year's taxes and working from home. For the past 13 weeks, I have been forced to work from a home office. (I am a regular W-2 employee, not self-employed.) I have had some expenses come up that were brought about by working from home: a computer upgrade so I can better connect to Wi-Fi, a new router, and even a desk chair so I am comfortable while I work. Should I be keeping track of those expenses? Will they be deductible? My employer is not going to reimburse them. Thank you for your help!"
Another question came from Miki, who used my contact page at Lauradadams.com to reach me. She said:
"Hi, Laura, and thank you for a wonderful podcast! I've been listening for years and have always thought that you'd have a show for any question I could ever think of. But this new situation with COVID-19 has made me think of something that I'm sure many of us are dealing with right now.
"To start working from home, I had to spend quite a bit of money to get my home office on par with my actual office. I know you've done episodes on claiming home office expenses on taxes before, but could you do an episode on whether we can claim home office expenses on our taxes next year? And if we can, things we should start thinking about now (aside from saving the receipts)?"
Thanks for your kind words and thoughtful questions! I'll explain who qualifies for a home office tax deduction and serve up some tips for claiming it.
5 things to know about the home office tax deduction during coronavirus
Here's the detail on five things you should know about qualifying for the home office tax deduction in 2020.
1. COVID-19 has not changed the home office tax law
The CARES Act changed many personal finance rules—including specific tax deadlines, retirement distributions, and federal student loan payments—but the home office tax deduction is not one of them. In a previous post and podcast, Your Guide to Claiming a Legit Home Office Tax Deduction, I covered the fact that the Tax Cuts and Jobs Act (TCJA) of 2017 drastically changed who can claim this valuable deduction.
Before the TCJA, you could claim a home office deduction whether you worked for yourself or for an employer either full- or part-time. Unfortunately, W-2 employees can no longer take advantage of this tax benefit. Now, you must have self-employment income to qualify. My guess is that the IRS was concerned that it was too easy to abuse this benefit and reined it in.
Before the TCJA, you could claim a home office deduction whether you worked for yourself or for an employer either full- or part-time. Unfortunately, W-2 employees can no longer take advantage of this tax benefit.
The best option for an employee is to request expense reimbursement from your current or future employer even though they're not obligated to pay you. If you get pushback, make a list of all your home office expenses so it's clear how much you spent on their behalf. They might consider it for your next cost of living raise or bonus.
Unless Miki or Ian have a side business that they started or will start, before the end of 2020, they won't get deductions to help offset their home office setup costs.
2. The self-employed can claim a home office tax deduction
Let’s say you use a space in a home that you rent or own for business purposes in 2020. There are two pretty straightforward qualifications to qualify for the home office deduction:
- Your home office space must be used regularly and exclusively for business
- Your home office must be the principal place used for business
You could use a spare bedroom or a hallway nook to run your business. You don’t need walls to separate your office, but the space should be distinct—unless you qualify for an exemption, such as running a daycare. It’s permissible to use a separate structure, such as a garage or studio, as your home office if you use it regularly for business.
You must use your home as the primary place you conduct business—even if it’s just for administrative work, such as scheduling and bookkeeping. However, your home doesn’t have to be the only place you work in. For instance, you might work at a coffee shop or meet clients there from time to time and still be eligible for a home office tax deduction.
3. Your business can be full- or part-time to qualify for a home office tax deduction
If you work for yourself in any trade or business, either full- or part-time, and your primary office location is your home, you have a home business. No matter what you call yourself or your business, if you have self-employment income and do any portion of the work at home, you probably have an eligible home office. You might sell goods and services as a small business, freelancer, consultant, independent contractor, or gig worker.
If you work for yourself in any trade or business, either full- or part-time, and your primary office location is your home, you have a home business.
As I previously mentioned, the work you do at home could just be administrative tasks for your business, such as communication, scheduling, invoicing, and recordkeeping. Many types of solopreneurs and trades do most of their work away from home and still qualify for a legitimate home office deduction. These may include gig economy workers, sales reps, and those in the construction industry.
4. You can deduct direct home office expenses for your business
If you run a business from home, your direct home office expenses qualify for a tax deduction. These are costs to set up and maintain your office, such as furnishings, installing a phone line, or painting the walls. These costs are 100% deductible, no matter the size of the office.
5. You can deduct indirect home office expenses for your business
Additionally, you’ll have costs that are related to your office that affect your entire home. For instance, if you’re a renter, the cost of rent, renters insurance, and utilities are examples of indirect expenses. You’d have these expenses even if you didn’t have a home office.
If you own your home, potential indirect expenses typically include mortgage interest, property taxes, home insurance, utilities, and maintenance. You can't deduct the principal portion of your mortgage payment, which is the amount borrowed for the home. Instead, you’re allowed to recover a part of the cost each year through depreciation deductions, using formulas created by the IRS.
Allowable indirect expenses actually turn some of your personal costs into home office business deductions, which is fantastic! They’re partially deductible based on the size of your office as a percentage of your home—unless you use a simplified calculation, which I’ll cover next.
How to calculate your home office tax deduction
If you qualify for the home office deduction, there are two ways you can calculate it: the standard method or the simplified method.
The standard method requires you to keep good records and calculate the percentage of your home used for business. For example, if your home office is 12 feet by 10 feet, that’s 120 square feet. If your entire home is 1,200 square feet, then diving 120 by 1,200 gives you a home office space that’s 10% of your home.
In this example, 10% of your qualifying expenses could be attributed to business use, and the remaining 90% would be for personal use. If your monthly power bill is $100 and 10% of your home qualifies for business use, you can consider $10 of the bill a business expense.
To claim the standard deduction, use Form 8829, Expenses for Business Use of Your Home, to figure out the expenses you can deduct and then file it with Schedule C, Profit or Loss From Business.
The simplified method doesn’t require you to keep any records, which makes it incredibly easy to claim. You can claim $5 per square foot of your office area, up to a maximum of 300 square feet. So, that caps your deduction at $1,500 (300 square feet x $5) per year.
The simplified method requires you to measure your office space and include it on Schedule C. It works best for small home offices, while the standard approach is better when your office is bigger than 300 square feet. You can choose the method that gives you the largest tax break for any year.
No matter which method you choose to calculate a home office tax deduction, you can't deduct more than your business's net profit. However, you can carry them forward into future tax years.
Also note that business expenses that are unrelated to your home office—such as marketing, equipment, software, office supplies, and business insurance—are fully deductible no matter where you run your business.
If you have any questions about qualifying business expenses, home office expenses, or taxes, consult with a qualified tax accountant to maximize every possible deduction and save money. The cost of working with a trusted financial advisor or tax pro is worth every penny.
Skipping Renters Insurance? Why Thatâs a Bigger Risk Than Youâd Think
As a finance writer, I am surrounded by people who know a lot about managing money. But even those with the most money know-how can still miss financial must-haves. For instance, in a recent conversation, a few of my coworkers stated they didnât have renters insurance. This puts them among the 59% of renters who… Read More
The post Skipping Renters Insurance? Why Thatâs a Bigger Risk Than Youâd Think appeared first on Credit.com.
What Is a Life Underwriter Training Council Fellow (LUTCF)?
New insurance agents can get a grounding in the basic skills, such as underwriting, needed to succeed in the field by becoming a Life Underwriter Training Council Fellow (LUTCF). After completing the required training, agents will have greater expertise in … Continue reading →
The post What Is a Life Underwriter Training Council Fellow (LUTCF)? appeared first on SmartAsset Blog.
So You Want to Buy a Fixer-Upper: Hereâs What You Need to Know
Stephen and David St. Russell, self-taught renovation and fixer-upper experts, are sharing their advice for homebuyers who are looking to explore buying a home that needs some extra TLC.
The post So You Want to Buy a Fixer-Upper: Hereâs What You Need to Know appeared first on Homes.com.
How to Buy a HUD Home at the Hudhomestore Website?
Using the Hudhomestore to buy a HUD home is easy. If you’re looking to buy a HUD home, the Hudhomestore website is the best place to do it. It can be found here at hudhomestore.com. HUD homes are listed for sale at the site. While anyone can buy a HUD home, you will need to …
Continue reading “How to Buy a HUD Home at the Hudhomestore Website?”
The post How to Buy a HUD Home at the Hudhomestore Website? appeared first on GrowthRapidly.
Popular Housing Markets During the Pandemic
Thereâs something weird happening with the real estate markets today. Normally in a recession, demand for rentals goes up while demand for houses goes down. But if thereâs anything 2020 has taught us, itâs that everything is turned on its head right now. Instead, weâre seeing an interesting trend: despite the ongoing pandemic, home-buying is […]
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Personal Financial Improvement With The Fruit Of The Spirit
How does love apply to money? Is it possible to be joyful even when broke? Do I have the self-control to get out and stay out of debt? Find out more!
The post Personal Financial Improvement With The Fruit Of The Spirit appeared first on Bible Money Matters and was written by Tim Kiser. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.