If there is one business trend that has affected virtually every industry and sector, it’s the rise of remote work. It doesn’t matter whether you work for a Silicon Valley startup worth millions, you’re a high school in a rural district, or you’re a marketer who travels to their clients, 2020 saw millions of people adjust to working outside of the office. However, many of these professionals are confused about how exactly to calculate taxes associated with working remotely.
Are there any accounting tricks that they should know about? Should every business owner consult a CPA and see whether they are efficient when it comes to bookkeeping? How are taxes affected by impact payments, and what deductions and credits might your company be eligible for? Let’s examine what remote working means for taxes, and how those who have participated in remote working might want to consider regarding the taxes they owe.
If we are going to speak about paying taxes as a remote worker, we have to come up with a true definition of “remote working.” If you started a business out of your home and are steadily growing thanks to the products and services that you offer, are you a remote worker? What if you work for an organization that continually has you flying from city to city? How should you be paying your taxes in this particular case?
The concept is simple: you are a remote worker if you are working outside of the business’s geographical location. If you are working from home but your office is located twenty miles away, technically you have been a remote worker (especially if you have been doing so for months or years). If you are working from home and wondering how to file taxes, the answer is simple: file taxes from your residence.
If you spend most of the time in the office but enjoy working from home a couple of days a month, the IRS doesn’t consider you a remote worker. The pandemic might have you currently working from a remote location - but if it is not permanent, you should not consider yourself a “remote worker.’
Things can get interesting if you are trying to file taxes as a remote worker in a few different states. Why is this the case? Some states do not require individuals to pay income tax, and many of these states have attracted families precisely because of these laws. If your state doesn’t require income taxes, this can save you a tremendous amount of time and money when it comes to bookkeeping or seeing a CPA.
Many states do not require income taxes. Here are several of them: Texas, Wyoming, Tennessee, New Hampshire, South Dakota, Alaska, Nevada, and Florida. This list is not comprehensive, and you should take the time to research your state and its income tax laws.
Living And Working In Other States
You might be a freelancer that works for a company but lives in another state in the meantime. Some laws and regulations seek to simplify this situation for the taxpayer since no taxpayer should have to go through double taxation. For those unaware, double taxation occurs when a professional has to pay taxes in two states since they live in one and work in another. It might be best to consult a CPA to figure out how best to deal with this situation, and many tax credits are meant to streamline this process.
Some states have specific laws when it comes to taxes, however. This is why it is best to consult a CPA or bookkeeping professional to find out more about your particular situation or company. For example, in North Carolina, a law exists that states that an individual who works in Virginia is subject to liabilities regarding taxes whether or not they work in the office. It’s essential to determine the local city and state laws regarding the office and how income is taxed.
A remote worker remains eligible for certain tax deductions, but it’s also important to remember that you may not have all of the tax deductions you thought. This is due to the ever-changing nature of tax law. Business travel expenses can no longer be a tax deduction for remote workers - and that goes for educator reimbursements and meal reimbursements, as well.
What else is no longer eligible for deductions when it comes to remote worker taxes? Some bookkeeping professionals and a CPA may also emphasize the fact that where you live and where you work are big factors in determining your obligations on your taxes.
It might be best to have a discussion with your employer regarding potential tax deductions. If your job makes it so that your utility bills triple, for example, there’s a good chance that a conversation with your employer can make it so that you are reimbursed, and you don’t have to look to your taxes for reimbursement.
First and foremost, remote workers should research where they work and live and how that state tends to deal with remote work and taxes. You can do this research on your own if you are a gig worker or freelancer hoping to save money, but it is ideal to consult with a CPA to make sure you aren’t overlooking anything regarding your taxes.
Let’s face it: accounting isn’t fun for business owners, and it isn’t like remote workers are excited to pay taxes. However, it is a necessary part of life. Those involved in remote work should research the “tax nexus” of their company, as well. You may also have to begin thinking about the amount of time that you spend in a particular state and what income thresholds are most relevant to your situation.
If you work from home, file taxes from your state of residence. Remote working employees should do some more research and consult a CPA if you live in one state but work in another. Remote workers should be as upfront as possible regarding income taxes if you don’t want to deal with bookkeeping headaches in the future.
Have any questions or would like some help? Reach out to the Hall Accounting team at tax@hallacctcocom for more information!
FUTURE IMPORTANT DEADLINES
Deadline for employers to mail out W-2 Forms to their employees and for businesses to furnish 1099 Forms reporting non-employee compensation, bank interest, dividends, and distributions from a retirement plan
Deadline for businesses to mail Forms 1099 and 1096 to the IRS
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065) or to request an automatic six-month extension of time to file (Form 7004)
Deadline for businesses to e-file Forms 1099 and 1096 to the IRS, except Form 1099-NEC
Deadline to file individual tax returns (Form 1040) for the tax year 2020 or to request an automatic extension (Form 4868) for an extra six months to file your return, and for payment of any tax due, and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for corporations that use the calendar year as their tax year
Deadline for household employers who paid $2,200 or more in wages in 2020 to file Schedule H for Form 1040
Deadline for first-quarter estimated tax payments for the 2021 tax year
Deadline for second-quarter estimated tax payments for the 2021 tax year
Deadline for third-quarter estimated tax payments for the 2021 tax year
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020 for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065)
Final extended deadline to file individual tax returns for the year 2020 (Form 1040), and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020 for corporations that use the calendar year as their tax year