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How to Estimate Taxes

If you have an employer or are self-employed, you should be estimating taxes. The purpose of filing taxes is to see if you paid enough taxes throughout the year. If you have an employer, you complete a W4 they’ll know how much taxes to take out of your check. If you’re self-employed, you have to withhold the taxes on your own.

In order to estimate the amount, use the W4 Estimator created by the IRS. This tool should be used if you are an employee or self-employed. In order to use, you will need:

  1. Filing Status
  2. Total Income
  3. Most Recent Paystub(s) & Pay Frequency (if employee)
  4. Total Expected Earnings (Self-Employed)
  5. Any additional Earnings (Dividends, Rental Income, Investment Sale, Retirement Distributions, Lottery Winnings, etc)
  6. Applicable Adjustments, Deductions, & Credits

Here are a few tips when using the W4 Estimator to estimate taxes as a self-employed person with no employer income.

  1. It will ask “Do you (or will you) have a job that regularly withholds federal income taxes from your paychecks?”, you must answer Yes.
  2. At the “My First Income Source” section, choose “Salary” as your income source. Then choose “I do not hold this job yet; I expect to start this job later this year”. When the date box appears, enter a future date as the start and end date. Chose “Once a month” when it asks “How frequently will you be paid?” Then enter 0 as your annual salary. Answer Yes when it asks you to confirm the amount, then click “none of the above” for the next questions. After that section, enter your self-employment net income information.
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How Home Office Deduction Work on Taxes

woman working in home office
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Everyone’s working from home – or so it seems. So, it only makes sense that there will be home office deductions on your tax return. Here’s everything you need to know about home office tax deductions.

Who Can Take the Home Office Deduction

If you’re self-employed, congratulations because this home office deduction is for you. Once upon anyone could claim this as an itemized deduction if you worked from home, but that was eliminated a few years ago.

To be eligible to claim this deduction as a self-employed person, you must have a home office or work space the is used exclusively for your business. This means you cannot use that portion of your home for any other reason.

In addition, the home space must be your primary place of business. That means you do not have access to an office or space outside of your home. This includes when you’re forced to work from home because of circumstances out of your control. Business owners who were forced to work from home due to the pandemic is a perfect example.

What is an Eligible Home Office Deduction

The majority of thing you use the course of your business is an eligible deduction. So, when you work at home that include a portion of your utilities, mortgage interest, even rent. However, to reduce your chance of being audited you need to know what expense category each belongs under.

The E-book the Tax Deduction Index was created for this purpose. It has a list of hundreds of eligible business expenses and the tax category listed to claim it properly.

How is Home Office Deduction Calculated

There are two way to calculate the portion of your expense that’s eligible. You can do the simplified option or the regular method.

The simplified option is when you get $5 a square foot for business use of the home, to a maximum of 300 square feet. That would be a $1500 deduction if your space was that big.

The regular method is when you claim the portion of the expense based on the percentage of the home devoted to business use. The expense amount would be the Indirect expense. The portion to the business would be the Direct expense.

For example. Your electricity bill for the month was $200.  If your home was 1000 square feet and the portion of the home used for business was 10 square feet, the eligible business deduction would be 1% (10/1000 = 0.01 x 100 = 1%).

Indirect Expense Amount: $200

Direct Expense Amount: $2

The eligible deduction for your electricity bill would be $2 based on the regular method

After you total all your expenses under the regular method, you can determine if simplified would work out to a bigger amount.

How to claim the deduction

To claim the deduction, you must complete form 8829 which is carried to your Schedule C of your Income Tax Return (Read: What taxes you must file when self-employed).

Visit the IRS for more information on home office tax deductions.


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Income Tax Forms You Need to File

Before you file your tax return make sure you have all the required forms to file. A W-2 is the one form everyone seems to be familiar with, however that’s not the only income form. If you received any additional income, there are other forms you may need to file. You don’t want to receive a letter from the IRS stating something is missing.

Here is a list of the income based forms you may need to file during the tax season.

Employee Wages: W-2

Income received as a Contractor: 1099 MISC

Retirement account Income (ie 401k): 1099-R

Stock Sales: 1099-B

Dividend Payment: 1099-DIV

Bank Interest: 1099-INT

Unemployment Income: 1099-G

Lottery/Gambling Winnings: W-2G

If you have questions about your income tax return, schedule a 60 minute coaching session.