When is Working from Home a Tax Deduction?

When is Working from Home a Tax Deduction?

The most recent changes to the tax laws stipulate that the home office deduction is no longer available for employees.

If you are self-employed or an independent contractor, you might qualify for the deduction if you can pass two tests:

  1. Regular and exclusive use: You must regularly use part of your home exclusively for your business.
  2. Principal place of your business: You must be able to show that you use your home as your principal place of business. If you have another location and you ALSO use your home to substantially and regularly conduct business, i.e. meet with clients, it may be deductible. If you have a separate free-standing structure that is used exclusively and regularly for your business, it does not need to be your principal place of business.

If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

Examples: You have an office where you meet your clients for appointments, but you also use your home office to do admin work. Use of your home office would be considered only “appropriate and helpful” and, as a result, not be tax deductible.

TL;DR: If you pass the two tests, you should take the deduction – though it is hard to pass the tests if you are renting another office space.

When is Mileage a Tax Deduction

When is Mileage a Tax Deduction?

There are only three times when mileage qualifies you for a tax deduction.

Medical Mileage: 20 cents per mile

Miles driven for medical purposes are deductible on Schedule A. The miles you drive to the doctor’s office, pharmacy, and hospital count. However, you only qualify for this deduction if your medical expenses exceed 10% of your income in a given year.

Charitable Mileage: 14 cents per mile

Miles driven for charitable purposes, such as donating goods or while volunteering, are deductible on Schedule A. So if you are volunteering for a non-profit to pick up garbage, the miles you drove to the worksite are deductible.

Business Mileage: 58 cents per mile

Miles driven between worksites, to client meetings, or to pick up supplies are deductible. This does include traveling to/from continuing education and seminars. These are only deductible if you are self-employed or an independent contractor. If you are a W-2 employee these miles are no longer deductible.

Commuting Mileage: NOT DEDUCTIBLE

Commuting from your house to your office is not deductible.

How do I deduct mileage?

If you want to take the mileage deduction, you need to log all of your trips that you want to deduct. You log should include the date, destination, miles, and the reason for the travel. We ask for your total miles, your business miles, and your personal miles for your tax return. You should also write down your odometer on 12/31 or January 1st each year.

There are a variety of apps to keep track of your mileage but most tend to cost between $3 to $10 a month. Unless you are driving more than 20 miles a month, you won’t break even in software costs.

TL;DR: Keep a mileage log if you want to take the mileage deduction.

Marriage & Taxes

Wedding bells are ringing! If you have or are about to marry the love of your life, life probably feels just perfect right now, and we here at TL;DR wish you a long and happy marriage.

But how does marriage impact your taxes? Tying the knot causes some changes in how you file your taxes.

Changes in Filing Status After Getting Married

After you get married, should you choose to file your taxes as married filing jointly or married filing separately?

Married Filing Jointly

Married filing jointly is usually the biggest (tax) change that occurs after getting married. Married filing jointly means you and your partner file your taxes together. You both report the combined total of all of your income and deductions. This is the simplest way to file your taxes when you are married — especially if you live within Washington State.

Married Filing Separately

Washington State is a community property state. This means that once you are married, you and your spouse own an equal share (50/50) of any money you bring into the marriage and any debts incurred during the marriage.

So what does this mean for your tax return?

It means that if you file married filing separately, you need to split any community property 50/50 on your return. It means partner A’s wages of $50,000, and partners B’s wages of $100,000 would need to be split on each of your returns. In this example, you each would report $75,000 income on your separate returns.

You also lose the following deductions:

  • The child and dependent care tax credit
  • The adoption credit
  • The Earned Income Credit
  • Tax-free exclusion of U.S. bond interest
  • Tax-free exclusion of Social Security benefits
  • The credit for the elderly and disabled
  • The deduction for college tuition expenses
  • The student loan interest deduction
  • The American Opportunity Credit and Lifetime Learning Credit for higher education expenses
  • The deduction of net capital losses
  • Traditional IRA deductions
  • Roth IRA contributions

 

Unless you are on an income-based repayment plan for your student loans, we normally do not recommend married filing separately.

Can I just file as single?

No – the IRS frowns on this. Because you are married, some things have changed in regards to filing your taxes.

Doubling of the standard deduction

With the current tax law the standard deduction is $12,200 for single. The standard deduction for married taxpayers is $24,400.

Tax Rates

TL;DR: Congrats on getting married. If you are worried about how marriage will affect your taxes, schedule a tax projection for engaged couples to see what your future return will look like.