Perks of Working from Home – The Home Office Deduction

Perks of Working from Home – The Home Office Deduction

by | Jan 9, 2019 | Business Tax, Individual Tax

Home offices are a popular way for businesses to do their work, especially for small, growing firms and sole proprietorships. Perhaps you happen to operate your business out of your home? Depending on your circumstances, your expenses for your home office may be tax-deductible.

Qualifying to Claim the Home Office Deduction

In order to claim the Home Office Deduction, there are two basic requirements to meet:

  1. Regular and exclusive use – A portion of your home must be EXCLUSIVELY used for conducting business to qualify. You can designate a spare room as an office, and it can only be used for that. Setting up shop in your garage may end up disqualifying your office because personal usage can often overlap with business.
  2. Principal place of business – You must demonstrate that your home is your principal place of business. For example, your business may involve traveling to meet clients at other locations but the majority of your operations are still carried out at your home office (phone calls, bookkeeping, filing records, etc.). Generally, deductions for a home office are based on the percentage of your home that is designated for business use.

Methods in claiming the Home Office Deduction

The IRS gives qualified businesses two options to calculate and claim the Home Office Deduction, the simplified option and regular method.

  • Simplified Option – Available for taxable years 2013 and onward, this sets a standard deduction rate of $5 per square foot of the home used for a business with a maximum of 300 square ft.
  • Regular Method – Instead of a standard rate, taxpayers must determine actual expenses related to the operation of the home office, such as utilities, repairs, and mortgage interest. These expenses are calculated in relation to what percentage of your home is used for the business. Publication 587 has an expansive list of qualified expenses for the Home Office Deduction.

The Home Office Deduction can be claimed on Line 30 of the Schedule C form usually filed with Form 1040. Properly claiming the Home Office Deduction can become an involved process for small and upcoming businesses. Having a knowledgeable firm assist with claiming the deduction and other tax filings can free up business owners to focus on their ambitious growth goals. MiklosCPA is a California-based CPA firm that works with small to midsized clients on their accounting and tax needs. Want to learn more about our services? Schedule a call with us for a quick rundown, and also follow us on our social media for future good-to-know articles like this one.

Working for Yourself – Gig Worker Tax Awareness

Working for Yourself – Gig Worker Tax Awareness

by | Dec 19, 2018 | Business Tax, Individual Tax

Internet-based temporary work through services, such as Lyft and Grubhub, have proliferated the rise of the “gig economy.” Gig workers find working on their own schedules and in changing environments very appealing. Of course just like an employee, gig workers are often required to pay taxes. The IRS views these gig workers essentially as independent contractors, which come with the ramifications of taxes as a self-employed worker.

Gig Worker Tax Pointers

Here are some things gig workers should be aware of when the time to file taxes comes around:

  • Self-employed workers have an obligation to file their taxes if they make at least $400 in a year.
  • As a self-employed worker, you get paid up front for your services. However, this comes with the added responsibility of being mindful of setting aside a portion of those earnings for your taxes.
  • “Self-employment taxes” as most tax professionals understand it, mean the Social Security and Medicare tax shares that employers and employees normally pay. Employees usually have a portion of their check cut for those taxes. Self-employed people must pay BOTH the employer AND employee share of taxes (15.3% for 2018). However, a portion of this may be deductible.
  • Self-employed workers who are expected to owe $1,000 or more in taxes must also make estimated tax payments quarterly throughout the year. Use the 1040-ES.
  • Businesses who have paid independent contractors less than $600 are not required to send 1099-MISC forms, so self-employed gig workers should check their earnings and contact businesses they have worked with in the past year (Check our article for more info on if your client should send you a 1099-MISC form).
  • Self-employed individuals can claim a variety of business-related expense deductions, such as home office deductions, depending on the nature of those expenses and meeting certain criteria. Check our deduction articles for more information.

Self-employed gig work has limitless potential to be lucrative and many deductions to claim, but they also come with a lot of tax concerns. MiklosCPA has helped many small businesses, like sole proprietors and partnerships, with their tax and accounting needs. We use contemporary “virtual office” services so that business clients can readily reach us. If you wish to know more of how our services work, contact us. Also, follow us on our social media pages for regular “good to know” postings like this article.

Hiring a Helping Hand – The Work Opportunity Tax Credit

Hiring a Helping Hand – The Work Opportunity Tax Credit

by | Dec 7, 2018 | Business Tax

As a business owner, hiring the right staff requires a thorough vetting process. What if hiring the right staff also makes your business eligible for a tax credit? The federal government offers the Work Opportunity Tax Credit (WOTC) to employers who hire individuals from certain targeted groups of people, such as veterans.

Qualified Targeted Groups

Some of the “targeted groups” eligible for WOTC include:

  • Qualified veterans
  • Disabled persons referred to employer as part of a vocational rehabilitation program.
  • Summer youth employees
  • Qualified Supplemental Nutrition Assistance Program (SNAP) recipients
  • Qualified Supplemental Security Income recipients
  • Long-Term Unemployment Recipients

Each category holds additional requirements, but groups deemed “historically disadvantaged” like the ones mentioned above are eligible for WOTC. In addition, employers must obtain certification from their state’s workforce agency to certify that new hired individual is part of the targeted groups. For example, Californian employers would need to contact their state’s EDD for the certification.

Claiming the Credit

WOTC is claimed on Form 5884. The credit was recently extended through December 31, 2019 through the Protecting Americans from Tax Hikes Act of 2015 (PATH). The tax credit is worth up to 40% of the first $6,000 of each new hire’s first year wages.

Small businesses require owners to wear lots of “hats” in overseeing the daily functions, such as sales and bookkeeping. Having a dedicated team shoulder the accounting side can help owners focused on a primary goal, growing the business. MiklosCPA assists client firms with their accounting and tax needs using our “virtual office” services so that owners can make adept, real-time decisions for their businesses. Reach out to us if you are interested in learning how we can help your business, and follow us on social media for future “good-to-know” write-ups.

Our Firm

MiklosCPA is a top-rated cloud-based Certified Public Accounting firm in Los Angeles, Orange County, California serving small businesses and start-ups.
January 2025
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
2728293031  

Office Address
355 S. Grand Avenue
Suite 2450
Los Angeles, CA 90071

Links
IRS ITIN Application
Affiliations
Discounts

Have an immediate question?
Phone: (213) 283-9002
E-mail: urCPA@mikloscpa.com
(a.k.a. yourCPA)

Follow us on social media

Copyright © 2022 MiklosCPA. All rights reserved.     Privacy Policy     Terms & Conditions

Qualified Medical Expenses for Itemized Deductions

Qualified Medical Expenses for Itemized Deductions

by | Nov 26, 2018 | Individual Tax

Medical expenses are inevitable and often extensive and expensive. Why not use them to potentially lower your taxes? Depending on if it qualifies, your medical expenses can be part of your itemized deductions, which if you gather enough of them, can potentially lower your tax bill. Before you start gathering your bills, keep in mind only certain medical expenses qualify to be deductible.

Qualified Medical Costs

In general, medical expenses used to pay for the diagnosis, treatment or prevention of illnesses qualify as deductible medical expenses. Some common examples include:

  • Prescription medication costs.
  • Cost of travel to medical office, such as taxi fare.
  • Purchase of medical equipment or supplies such as wheelchairs, eyeglasses, etc.
  • Part B Medicare.
  • Direct costs to medical professionals, e.g. paying out of pocket for emergency room visits or medical office visit co-pay.

Elective cosmetic surgery costs are not deductible. Costs that are simply beneficial to one’s health, such as vitamins or gym memberships, are also not deductible. Insurance premiums are usually not deductible, but may be in certain circumstances if it covers the costs of hospital bills.

Figuring the Medical Expense Deduction

Medical deductions can be claimed on Schedule A of your 1040. In order to claim the medical expense deduction, the TOTAL of all those expenses must exceed 7.5%* of an individual’s adjusted gross income (AGI). The qualified expenses must have also been incurred during the applicable tax year. Prior year expenses cannot be included. For example:

Tom has learned from his accountant that his AGI is $55,000. After gathering all of his qualified medical costs for the year, he finds out it totals $3,348. He cannot claim the medical deduction because his total is less than $4,125, which is the 7.5% AGI that needs to be exceeded in order to claim the medical deduction.

Combined, itemized deductions need to exceed the standard deduction amount in order to claim itemized deductions. To be able to claim itemized deductions, extensive planning must be taken. Having a knowledgeable support team like us at MiklosCPA to properly gather those qualified deductible expenses can potentially help save on your taxes. We have helped many small and mid-sized businesses with their accounting and tax needs. Contact us for more info on how we can help you. Also follow us on our social media pages for more “good to know” articles.

 

*The 7.5% applies for 2018, but will revert to 10% for 2019 and onward.

Give and Save – Plan for Your Charitable Deductions

Give and Save – Plan for Your Charitable Deductions

by | Nov 12, 2018 | Business Tax, Individual Tax

With the year wrapping up, many people get into the spirit of giving. Why not take the opportunity to do some good for the community along with potentially lowering your taxes with charitable deductions?  Charitable deductions are a type of itemized deduction that taxpayers can use to potentially lower the taxes they owe. Unfortunately, volunteering at the soup kitchen isn’t deductible, so we are looking at tangible charitable donations like cash and goods. As always, it is a good idea to keep receipts and records of any donations made.

Charitable Organizations

To get started, find a proper “tax-deductible” nonprofit. There’s a plethora of nonprofit organizations out there, but not all of them are “tax-deductible.” The IRS has laid out specific rules on qualified nonprofits that can receive tax-deductible donations. The majority of qualified organizations are known as 501c3 organizations (See our article on 501c3s for more details) , these organizations meet specific criteria to be classified as such. Use the IRS’s search database to confirm if the organization you wish to support can provide a tax-deductible donation.

Cash Donations

Direct donations of cash made to qualified nonprofits come with some limits on the giver and also can depend on the nonprofit organization. A 50% adjusted gross income (AGI) limit applies to the total cash charitable contributions an individual or organization can make. A 30% AGI limit may apply instead, depending on the nonprofit you may decide to contribute to.

Property contributions

Donations of property like cars or furniture to qualified nonprofits also come with some rules. A 30% AGI limit on the value of donated property applies to donations made to certain “50% limit” organizations, which typically include 501c3 organizations. For donations of property made to non-“50% limit” organizations, the AGI limit becomes 20%.

 

Confused? Understandable. There is a lot to account for in charitable donations. Having an informed team will help to plan out any charitable donations to utilize for you or your business.  We at MiklosCPA can help.  We are a California-based CPA firm that works with many small-to-midsized firms with their accounting and tax needs. Contact us for more info about our services, and follow us on our social media pages for future “good-to-know” articles.

Skip to content