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.

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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.

Quick Guide – Itemized Deductions

Quick Guide – Itemized Deductions

by | Oct 31, 2018 | Business Tax, Individual Tax

Itemized deducti-what? For many ears unfamiliar to taxes, it may sound like word spaghetti. In reality, the concept is simpler than assumed. Basically, itemized deductions are certain expenses that the IRS have allowed to be “deductible” from an individual or small business’s “adjusted gross income” (AGI). AGI is a number calculated from “adjustments” made to your gross income (the income you have prior to any calculations).  AGI is used to calculate how much you owe in taxes, so using itemized deductions to lower that AGI can potentially lower your taxes as an individual or small business owner.

Standard versus Itemized

The IRS allows individuals to claim either the standard OR itemized deduction. The standard deduction is something EVERYONE gets across the board as part of their tax formula. In order to claim itemized deductions, the total amount of itemized deductions must be more than the standard deduction. So gathering lots of itemized deductions can mean you’ll potentially get MORE than what you would’ve gotten with the standard deduction.

Different kinds of Itemized Deductions

Schedule A breaks down which expenses can be itemized deductions but there are a few notable ones worth highlighting:

With each itemized deduction category, certain calculations must be undertaken to be able to properly claim the expenses as itemized deductions.  Self-employed and small business owners can especially utilize itemized deductions to their advantage for taxes.

Small businesses (and their owners) usually require some planning to effectively utilize itemized deductions for their taxes. It requires proper records and filings to claim. As a firm adept at assisting small to mid-sized firms, MiklosCPA can certainly help your business claim those itemized deductions. Schedule a call if you want to learn more about our services.  Also, follow our social media pages for more “good to know” tax articles like this one, and for future articles.

2018 TCJA update – Business Meals & Entertainment Expenses

2018 TCJA update – Business Meals & Entertainment Expenses

by | Oct 11, 2018 | Business Tax

The much-publicized Tax Cuts and Jobs Act (TCJA) realigned commonly-held tax notions. Meal and entertainment expenses that were once deductible are no longer allowed as deductible under the new rules. Tax code overhauls require a refresher for businesses to meet compliance with new TCJA regulations.

Prior to 2018, meal and entertainment expenses were simply subject to the “ordinary and necessary tests” for business expense deductions.  In a nutshell, these tests determined if a reported meal or entertainment expense is part of the ordinary course of your industry and necessary for the course of your business. TCJA did away with much of what can be deducted for businesses. For example:

In 2017, Chon Wayne Services, an Alhambra marketing agency, treated clients annually to lower-stands seats at Dodger Stadium. They were able to deduct the costs as an entertainment expense at up to 50% of the value of each ticket. Under the new rules of TCJA in 2018, these entertainment expenses are no longer deductible.

 

Some Exceptions to Meal & Entertainment Deductions

Meals, under certain categories, still remain 50% deductible:

  • Employee meals while traveling.
  • Meals for employees or stockholders during business meetings.
  • Meals provided for business league meetings
  • Meals for the convenience of employer. Examples such as meals served to employees on the premises or an in-office cafeteria. However, this will become 0% deductible in 2025.

Good news is that there are still specific exceptions to the limits in claimable entertainment deductions. These still remain 100% deductible:

  • Expenses treated as employee compensation.
  • Reimbursed Expenses.
  • Employee recreational expense, other than highly compensated employees (such as a company picnic).
  • Business meetings and conventions.
  • Meetings of certain tax-exempt organizations like business leagues.
  • Entertainment available to the public (E.g. complimentary hotel rooms provided by casinos).
  • Entertainment sold to customers (E.g. operating a pleasure cruise ship as a business).
  • Expenses treated as non-employee compensation or a prize.

In order to properly claim these deductions, the IRS requires businesses substantiate these expenses. Therefore, to claim these deductions under the new rules, get in the good habit of maintaining accurate records and retaining receipts.

The TCJA has a lot of businesses seeking guidance on how to amend their bookkeeping in preparation for upcoming tax filings. Count on our knowledgeable services here at MiklosCPA to help your business meet those needs. We are a California-based accounting firm that helps small businesses with their tax and accounting needs. Reach out to us if you are interested in learning more, and follow our social media for more “good to know” articles like this.

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