Whether you're an employee or self-employed, you may have work-related expenses you can deduct on your income tax return.
More people now work at home at least part of the time. If you work in your home, you may be able to take an employee expenses deduction or a business deduction for a home office.
You can only take a deduction for a home office if you use an area in your home regularly and exclusively for business. It must be your principal place of business or a place you meet with clients, or it can be used in connection with your business if it is a separate structure not attached to your personal residence, such as a shop.
With the simplified option launched in 2013, you can deduct $5 per square foot (up to 300 square feet and with a $1,500 limit). This option greatly reduces time spent on paperwork and tracking expenses.
If you are an employee, the use of the home office must also be for your employer's convenience - not yours.
If you can deduct expenses for a home office, you can deduct a proportionate amount of all indirect expenses for your home, including mortgage interest, real estate taxes, rent, utilities, and so on.
If you are using the simplified method of reporting the deduction, you list these deductions on Schedule A, but you do not need to allocate them to business or personal use. Unlike the regular reporting method, the simplified option does not allow you to depreciate the portion of your home used to conduct your business.
If you are an employee, you may also be able to deduct unreimbursed travel and transportation costs, supplies, uniforms, and other expenses. Employee expenses must be significant before they actually lower your tax bill. You can only deduct your employee expenses to the extent that they exceed 2% of your adjusted gross income, and only if you itemize your deductions.
If you are self-employed, you can deduct your ordinary and necessary expenses for your trade or business. Some expenses, such as the cost of inventory or business equipment, may not be deductible in full in the year you pay them. TaxAct asks you questions about your inventory expenses to calculate your deductible cost of goods sold. TaxAct also calculates depreciation or first-year expensing for business assets you acquire.
If you pay people in the course of your business, it's important to correctly determine if they are independent contractors, or if they are really employees.
The IRS uses common law rules to determine if a worker is an employee or an independent contractor. Revenue Ruling 87-41 contains 20 of these rules you should take into consideration.
According to these rules, a person is likely to be an independent contractor if he or she requires little training, and has latitude over how the job is completed. An independent contractor is less likely to have a temporary relationship, to provide tools and supplies, and to work for more than one company.
A person is likely to be an employee if he or she is an integral part of the business and works only for one company. If an employee has travel or other expenses, the employer is more likely to reimburse them. Employees generally have set work hours and work on the employer's premises.
It's easier to write a check to independent contractors, rather than dealing with the paperwork that comes with hiring employees. However, it's important to classify employees or contractors correctly, to avoid reclassification by the IRS. If the IRS reclassifies a worker at some later date, you will be liable for back payroll taxes, plus penalties and interest.
If you travel for your business or as an employee, you can generally take a deduction for your travel expenses. Your trip must be for longer than a day - even a long day. Your duties must require you to be away from home long enough for you to need rest, generally meaning overnight.
Besides airplane or bus tickets, you can deduct the cost of the taxi or commuter bus you took to the airport or from the airport to your hotel. You can also deduct any costs for getting your business materials, e.g., exhibit booth or conference materials, to your destination, and your actual car or truck expenses or the standard mileage rate, in most cases.
You can also deduct the cost of meals and lodging while you travel, although you generally can only deduct 50% of the cost of your meals.
Miscellaneous expenses while traveling add up. Include items such as tips, dry cleaning and laundry expenses, and Internet and fax fees when traveling.
April 10 — Employees who work for tips
If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.
April 15 — Individuals
File a 2018 income tax return (Form 1040) and pay any tax due. If you want an automatic 6 month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. For more information, see Form 4868. Then, file Form 1040 by October 15.
April 15 — Corporations
File a 2018 calendar year income tax return (Form 1120) and pay any tax due. Details
April 15 — Individuals
If you are not paying your 2019 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2019 estimated tax. Use Form 1040ES.
April 15 — Household Employers
If you paid cash wages of $2,000 or more in 2018 to a household employee, you must file Schedule H Details
April 15 — Corporations
Deposit the first installment of estimated income tax for 2018 Details
April 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in March.
April 15 — Household employers
If you paid cash wages of $2,000 or more in 2018 to a household employee, you must file Schedule H (Form 1040). If you are required to file a federal income tax return (Form 1040), file Schedule H (Form 1040) with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040) if you paid total cash wages of $1,000 or more in any calendar quarter of 2017 or 2018 to household employees. Also, report any income tax you withheld for your household employees.
April 30 — Social security, Medicare, and withheld income tax
File Form 941 for the first quarter of 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until May 10 to file the return.
April 30 — Federal unemployment tax.
Deposit the tax owed through March if more than $500.