Here are four ways to make sure the preparation of your tax return keeps humming along until it gets filed.
- Keep tax documents in one place. Missing items are one of the biggest reasons filing a tax return gets delayed! Find a place in your home and put all tax documents in this one place as you receive them. Common missing items this year will include the new 1099-NEC for any taxpayers that are contractors, consultants or part of the gig economy.
- Organize documents by type. Every tax professional has a story of someone bringing their documents to them in a shoebox or storage container. All this does is increase the amount of time it takes to prepare your return, so it’s best to sort your documents in tax return order. Pull out last year’s tax return and create folders for each section including income, business/rental information, adjustments to income, itemized deductions, tax credit information and a not-sure bucket.
- Create list of special events. You receive a Form W-2 from your employer every year. You may get a 1099-INT from your bank if you earn interest income on your deposit accounts. But selling a home usually doesn’t happen every year. Retiring from a 40-year job doesn’t happen every year. Sending a child to college also doesn’t happen every year (although it might seem like it does!). If you don’t write down these unusual events as they happen, you might forget them when your tax return is being prepared. And you may not remember until the moment your return is about to be filed. This is sure to cause delays.
- Don’t forget your signature! You may be surprised to learn that even if you electronically file your tax return, you still must sign Form 8879, which authorizes the e-filing of your return. So, whether it’s a traditionally-filed paper tax return or one filed electronically, a signature is required.
These are four of the more common reasons why the preparation of your tax return may get delayed. Be prepared and file your return without a hitch!
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 complicated than it appears. If you need help, contact your financial advisor.
Handling employment taxes can be complicated, especially when you’re required to file important tax documents throughout the year. Here’s a list of key forms and deadline dates to help keep you on track.
Form 941 — Employer’s quarterly federal tax return
This form is used to report income tax withheld from employees’ pay and both the employer’s and employees’ share of Social Security and Medicare taxes.
Employers generally must deposit Form 941 payroll taxes on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual payroll tax liability is $1,000 or less.
- Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the 15th of the following month.
- Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
Return filing deadlines:
- Jan. 31, 2020 – Due date for filing Form 941 for the fourth quarter of 2019. If you deposited your taxes in full and on time, you have until Feb. 10, 2020, to file this return.
- April 30, 2020 – Due date for filing Form 941 for the first quarter. If you deposited your taxes in full and on time, you have until May 11, 2020, to file this return.
- July 31, 2020 – Due date for filing Form 941 for the second quarter. If you deposited your taxes in full and on time, you have until Aug. 10, 2020, to file this return.
- Nov. 1, 2020 – Due date for filing Form 941 for the third quarter. If you deposited your taxes in full and on time, you have until Nov. 10 to file this return.
Form 940 — Employer’s annual federal unemployment tax return (FUTA)
This return is due annually. However, FUTA tax must generally be deposited once a quarter if the accumulated tax exceeds $500.
- Jan. 31, 2020 – Due date for filing 2019 Form 940. If you deposited your taxes in full and on time, you have until Feb. 10, 2020, to file this return. This day is also the deadline for depositing federal unemployment tax for October, November and December 2019.
- April 30, 2020 – Deadline for depositing federal unemployment tax for January, February and March 2020.
- July 31, 2020 – Deadline for depositing federal unemployment tax for April, May and June 2020.
- Nov. 1, 2020 – Deadline for depositing federal unemployment tax for July, August and September 2020.
Form W-2 — Wage and tax statement
Employers are required to send this document to each employee and the IRS at the end of the year. It reports employee annual wages and taxes withheld from paychecks.
- Jan. 31, 2020 – Due date for employers to provide 2019 Forms W-2 to employees, and for employers to send copies of 2019 W-2s to the Social Security Administration, whether filing electronically or with paper forms.
Tax deadline extensions for disaster areas
For taxpayers living in designated disaster areas, the IRS extends certain filing and tax payment dates. Taxpayers living in the affected areas (and those whose tax professionals are located in those areas) have relief from penalties for filing under the new extended dates. These filing and payment extensions are also available to some relief workers.
Visit the IRS’s Disaster Assistance and Emergency Relief for Individuals and Businesses page for up-to-date information.
The Social Security Administration is now doing a better job in sending out earnings reports by mailing paper statements to workers every five years beginning at age 25. The reports are also available online at https://www.ssa.gov. These reports recap historic earnings and contain an estimate of potential benefits.
When you receive your report, spend a few minutes reviewing the statement. Here are some suggestions on how to do this.
- Review your earnings history – Towards the back of the report is a recap of your earnings record. This should accurately reflect reported earnings on your tax return. This number is a summary of all your earnings subject to Social Security as reported by your employer on your W-2 forms. But if you are self-employed or have many employers, you must make sure that the income properly reflects what you earned.
Action: Employees: Pull out your W-2s and make sure the totals match. Self-employed: Pull out your tax return and confirm totals match. Review history: Review historic figures as well. Your Social Security benefits use your full work history to calculate future benefits.
- Review your potential retirement benefits – The Social Security statement will provide you with an estimate of your benefit amount using current dollars and current work history. The value of your benefit will show three benefit amounts. One for the minimum retirement age of 62, one for the maximum amount if you start your benefits at age 70, and one for your full retirement age between the ages of 65 and 67.
Action: Consider these monthly benefit amounts in terms of your retirement plan to help create a realistic picture of what you will have available to you when you retire.
- Note other benefits – Remember, Social Security is not just about your retirement benefits. There are also estimates presented for disability and surviving family benefits. Please review these estimates to understand the potential benefits these programs may provide.
- Remember current benefits are just estimates – The benefits noted on this statement are estimates. Actual benefit amounts rise with inflation, change with tax laws, and adjust with your future earnings. Your benefit statement will show you the assumptions used in creating your estimated amounts.
Action: Review the assumptions used by the Social Security Administration. Pay special attention to the future earnings used by them to create the benefit amounts. If you do not think they are accurate, you may need to create revised estimates with more accurate assumptions.
Should you find any errors in the statement correct them immediately. The last page of the statement provides a means for doing this.
In an effort to reduce the amount of money paid to identity thieves who file fraudulent returns, the IRS will be implementing changes in the timing and way they handle the processing of tax returns.
These steps will continue to evolve, but recent changes will impact millions who depend on receiving an early refund.
Earlier filing of form W-2s and 1099-MISC – The timing required to send these forms to employees and vendors remains the end of January. However, the extended deadline for filing the electronic version of these forms to the IRS and Social Security Administration is now a full month earlier. This is done to allow the IRS to match records with early filed tax returns. The prior timing gap was ideal for thieves to file fraudulent tax returns.
Earned Income Tax Credit and Additional Child Tax Credit – If you file a tax return that contains either of these credits, do not expect to receive an early refund. The IRS has been mandated to hold these refund payments until February 15th or later. Given the payment backlog this will create, it is still important to file early to get your refund in the queue.
Begin planning now to be prepared for these upcoming changes. Rest assured, we can all look forward to further changes as the IRS continues to address the multi-billion dollar identity theft problem plaguing the Agency.
The goal for every taxpayer is to have their return filed quickly and without error. Here’s the first half of a handy list of items that are often overlooked and can cause all sorts of delays.
Review your tax return and return your signed eFile forms – Your tax returns can’t be filed until you have reviewed them and returned the signed eFile forms to your preparer. The sooner you do this, the sooner you’re filed.
Having proof of health insurance – You should receive a Form 1095 confirming you have health insurance. However, if your employer is one of those that received approval to send a delayed form, you still need to provide your preparer with proof of insurance before filing.
Missing W-2 and/or 1099 – One missing income form and the next thing you know, you’re paying to file an amended. Using last year’s tax return, or a tax organizer provided by your preparer, make sure all prior W-2’s and 1099’s are received and provided to your tax preparer.
Incorrect information on a W-2 or 1099 – Always double-check your forms to make sure the information is accurate – one wrong spelling of a name or one digit off on your SSN and the filing process comes to a screeching halt. Make sure 1099 income is in the correct box. Are you receiving rents and receive a 1099-MISC with the amount in the Non-Employee Compensation box? Then you face a choice – either try to get the form corrected or delay filing your tax return.
Missing or invalid Social Security Number – This one is sort of a given – if you don’t have a valid SSN, there will be no tax filing.
Dependent already claimed – Share joint custody of a child? Or, did your college student think they could file claiming themselves? Your return cannot be filed if there is a conflict in this area. Make sure it’s clear who gets to claim the dependents in your life.
Look for the second part of this article next week!