States look for definitive links connecting the state and the resident. Given the substantial drops seen in tax revenues across the nation, states will be keeping a close eye out for people trying to game the system by claiming to have moved to a lower-tax state permanently or have chosen to make it their primary residence when they really haven’t. You may want to consider consulting with a tax professional to understand the tax ramifications fully. That means you may be required to file tax returns in both states. If you stay away longer than six months on a temporary relocation, you will likely face a tax obligation in your home state as well as your temporary location. In 2019, we paid state income taxes in Louisiana and California on account of living in both states a roughly equal amount of time during the year (we moved in mid-June 2019). My wife and I relocated permanently prior to the pandemic, reasoning we stood to have a better quality of life elsewhere. Going forward, you will only need to file a tax return in your new state as you would in any event where you move across state lines permanently. If you’ve made a permanent move, you will need to file a tax return in both states this coming year. In the event you’ve decided to relocate permanently to a locale different from the one you started in 2020, you might face a complex tax situation come 2021. Doing so might allow you to keep more of what you make through lower costs or tax savings. Given the fact that many people can work from anywhere these days, it might not be news that many people have decided to relocate from higher cost of living areas to cheaper areas. This allows the company to claim these expenses as deductions on their business tax return, not the contractor. In the event a company provides equipment to the independent contractor or reimburses expenses, these items would fall under the first and second situations above, respectively. Your Financial Planner, CPA and Attorney Work Best When They Work Together They can also claim expenses such as depreciation on certain types of property, utilities, insurance and more. As a result, people working in this capacity have access to self-employment tax deductions to lower their taxable income. Independent contractors often have no expectation of reimbursement from their contracting company. Independent Contractors Get a Breakįor independent contractors who buy home office equipment and supplies without being reimbursed, the tax picture is brighter. No federal tax benefits exist at the moment. This would offset some of the expense picked up by employees. Prior to the Tax Cuts and Jobs Act, if these expenses exceeded 2% of employees’ adjusted gross income, they could claim these deductions on their tax return. In the final situation, employees purchase the needed supplies and equipment but have no expectation of receiving reimbursement from their employers. To avoid having employees count these expenses as taxable income, employers should lay out an “accountable plan,” or a set of policies that state what qualifies for reimbursement when employees need to purchase supplies and equipment at home. If the expenses count as “ordinary and necessary,” or those which your industry considers commonly accepted for conducting your trade or business, these reimbursements will not count as taxable income to the employee. This includes items that employees may also have available for personal use, such as a cellphone or computer, because the IRS deems these as “de minimis fringe benefits.” Assuming the employer provides these supplies and equipment for noncompensatory business reasons, employees will not need to pay taxes on these items. In the first situation, these items would qualify as an employer-owned supply and thus would be a deductible expense on their tax return. You purchase items and do not receive reimbursement.You purchase items and receive reimbursement from your employer.Your employer purchases the items and provides them to you.If you find yourself in this situation, you face one of three outcomes with respect to the financial and related tax implications: Now, many employees working from home will need to procure these items for themselves. In a standard work environment, the employer provides these necessities. For employees, those deductions are now gone.ĭespite this unfavorable rule change, employees still need supplies and equipment to function effectively in their jobs at home. This included any work-related expenses for business you conduct at home. Previously, employees could claim an itemized deduction for unreimbursed business expenses that exceeded 2% of their adjusted gross income. After tax reform became law at the end of 2017, employees lost the ability to deduct expenses related to maintaining a home office.
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