TaxGuys: Job Related Deductions (1 Viewer)

[Chadstroma]

I am going to be moving into a new job soon. (yea me!) This job will have a number of job related expenses associated with it that I never have had to deal with before. For the wife and I in the past, all we really deducted was the parking for her job in the city.

I am trying to figure out what I can expect to deduct and not deduct and generally any other things I should be aware of in terms of taxes go.

• I will be working partially out of a home office- I may or may not have a physical office in a work location. That is unsure at this point. What sort of things can I deduct? I will be setting up an office from scratch. I will be provided a laptop, iPad and color printer but beyond that it will all be on me. Can I expense everything?
  
• I will be getting a separate pay that is earmarked for business expenses but how it is spent is completely up to me. I was told it was 'taxable' income. No idea if that means regular tax or if it is taxed at a different rate, etc.
  
• I will be traveling a lot (local driving travel) as my region is quite expansive. Can I deduct gas? I assume parking like I do now for my wife if I need it. I will eventually be buying a commuter car, would that be deductible in any way?
  
• I may need to get another cell phone (so as to not mix personal and business phones). I assume that is deductible?
  
• Any other thoughts, ideas, suggestions, etc for things I may not even know the question of yet is welcome.
  

 

[saintfool]

most of that will have far less impact than you think it will on your taxes, imo. companies do this because it lowers their overhead (instead of reimbursements) and employees don't understand the reality of what this as it pertains to your tax liability year in and year out.

- you can only deduct the portion of your "home office" that you actually use. you can't claim your entire residence as the office. also, IIRC, you can't claim it if your company has a physical office that you *could* use. you can deduct the office supplies, furniture, et al one time, IIRC.

- driving gives you a standard mileage deduction. try to keep a record/diary/log with receipts. deduction is like $0.41/mile and it covers gas, vehicle depreciation, insurance, etc. and is only allowed if your company doesn't reimburse you for it. if you bought a second car exclusively for work then it would be eligible. 

- cellphone deduction is another work-related (like internet service) but, again, you only get to claim what portion you use for work. instead of getting a second phone, look into a Google voice account maybe for convenience.

There are some FBGs - Steve Tasker, for ex - who are CPAs and could counsel you better than me here. this is based on my own personal experience as a field rep and remote employee.

 

[Chemical X]

I am no expert, but I have heard that the IRS looks harder at those that take deductions for 'home office' expenses.

 

[Chadstroma]

most of that will have far less impact than you think it will on your taxes, imo. companies do this because it lowers their overhead (instead of reimbursements) and employees don't understand the reality of what this as it pertains to your tax liability year in and year out.

- you can only deduct the portion of your "home office" that you actually use. you can't claim your entire residence as the office. also, IIRC, you can't claim it if your company has a physical office that you *could* use. you can deduct the office supplies, furniture, et al one time, IIRC.

- driving gives you a standard mileage deduction. try to keep a record/diary/log with receipts. deduction is like $0.41/mile and it covers gas, vehicle depreciation, insurance, etc. and is only allowed if your company doesn't reimburse you for it. if you bought a second car exclusively for work then it would be eligible. 

- cellphone deduction is another work-related (like internet service) but, again, you only get to claim what portion you use for work. instead of getting a second phone, look into a Google voice account maybe for convenience.

There are some FBGs - Steve Tasker, for ex - who are CPAs and could counsel you better than me here. this is based on my own personal experience as a field rep and remote employee.

I have the choice of taking an office where available or my home. I foresee myself doing a mix of both. I will be doing a lot of phone work/emailing in this job so there is no need for me to drive somewhere to do that when I can save the time and do it at home. Also, I will be covering a wide geographical area so I will be spending enough time in the car when I am meeting clients in person so adding another daily small commute if I don't have to makes no sense to me.

If my home office will be in my basement in the room down there which will basically be my office/movie center/gaming area how does that work? Since I could use a company office and/or will be doing both- are you saying that I can't deduct anything?

The driving seems pretty straight forward. Are there any good aps for this to help track etc?

Can you expand on Google voice for me? I am not familiar at all.

 

[Jayrod]

I am going to be moving into a new job soon. (yea me!) This job will have a number of job related expenses associated with it that I never have had to deal with before. For the wife and I in the past, all we really deducted was the parking for her job in the city.

I am trying to figure out what I can expect to deduct and not deduct and generally any other things I should be aware of in terms of taxes go.

• I will be working partially out of a home office- I may or may not have a physical office in a work location. That is unsure at this point. What sort of things can I deduct? I will be setting up an office from scratch. I will be provided a laptop, iPad and color printer but beyond that it will all be on me. Can I expense everything?
  
• I will be getting a separate pay that is earmarked for business expenses but how it is spent is completely up to me. I was told it was 'taxable' income. No idea if that means regular tax or if it is taxed at a different rate, etc.
  
• I will be traveling a lot (local driving travel) as my region is quite expansive. Can I deduct gas? I assume parking like I do now for my wife if I need it. I will eventually be buying a commuter car, would that be deductible in any way?
  
• I may need to get another cell phone (so as to not mix personal and business phones). I assume that is deductible?
  
• Any other thoughts, ideas, suggestions, etc for things I may not even know the question of yet is welcome.
  

Are you technically an employee (W2) or a contractor (1099)?  You would have tons of benefit being a contractor, but the nature of your relationship will dictate that as opposed to what you would "like" to be.

 

[saintfool]

I have the choice of taking an office where available or my home. I foresee myself doing a mix of both. I will be doing a lot of phone work/emailing in this job so there is no need for me to drive somewhere to do that when I can save the time and do it at home. Also, I will be covering a wide geographical area so I will be spending enough time in the car when I am meeting clients in person so adding another daily small commute if I don't have to makes no sense to me.

If my home office will be in my basement in the room down there which will basically be my office/movie center/gaming area how does that work? Since I could use a company office and/or will be doing both- are you saying that I can't deduct anything?

The driving seems pretty straight forward. Are there any good aps for this to help track etc?

Can you expand on Google voice for me? I am not familiar at all.




 

Again, I'm not a tax professional here but I worked from home for a couple of years. IIRC, according to the IRS, you can deduct the home office only if your company doesn't really have a local office that you can use. I think that is pretty open and subject to interpretation though. Regarding the home office itself, you can only deduct the space used for the home office. So if your home is 2100 sqft and your basement, which is your exclusive home office, is 700sqft then only that 700 sqft is eligible. Any deduction will stem from that space utilized. I'm reluctant to say that 1/3 of your rent/mortgage is eligible for the deduction in this example but it may very well be. 

I just use a calendar to schedule and have the addresses handy. I'd track that way.

Google voice is a VOIP feature that can be attached to a Gmail account. It would give you a real # and could be added as an app on your phone. If you have Gmail then you could have it. No need to get the second phone as a result.

 

[Chadstroma]

Are you technically an employee (W2) or a contractor (1099)?  You would have tons of benefit being a contractor, but the nature of your relationship will dictate that as opposed to what you would "like" to be.

W-2

 

[Steve Tasker]

W-2

Any business-related expenses will be subject to the 2% AGI floor on Schedule A.  That is to say, if your AGI is, say, $100,000, your business expenses are not deductible to the extent that they are less than $2,000 (2% of your AGI).  If the business expenses exceed the 2%, they would be deductible to the extent that they exceed the 2%.  This includes things like a home office, unreimbursed travel, etc.  Note that commuting to an office is not deductible travel, though travel to your clients/vendors/etc. could be deductible if it is related to your job and not reimbursed by your employer.  This is all contingent on you itemizing your deductions, first of all, and not being subject to the various limitations on itemized deductions.  It is impossible to say with any real accuracy without having your financial records and knowledge of your tax history.

Someone noted above that the IRS scrutinizes home office deductions more closely than the average person.  My understanding is that this is still correct though erroneous home office claims are less frequent and less scrutinized than in the past.  It may increase your audit risk slightly but not astronomically.  Remember that you need to have a legitimate home office - ie a dedicated space within your home not used for other purposes.

ETA - Jayrod is correct that from a business deduction standpoint, you would have more benefit from being a 1099 contractor.  You would be able to deduct your business expenses without the 2% AGI limitation on Schedule A.  That said, you would also be liable for self-employment tax.  As a W-2 employee, your employer pays 1/2 of your Social Security/Medicare payroll taxes and you are liable for the rest with your payroll withholding.  As a 1099 contractor, you are liable for the entire amount as self-employment tax.

 

[The Commish]

It all depends on your agreement with your employer.  I've been WFH for about 15 years now and I haven't bothered to file tax deductions for anything but my initial set up.  I had to buy a desk etc.  You are entitled to a portion of your internet connection, phone bill, electrical etc, but in my experience, the benefit received isn't worth the time of tracking it.  You are entitled to gas as well if your employer leaves that to you to figure out.  If they pay for it via credit card etc, you don't get it.  As mentioned, you have a 2% mark before you start to see ability to right off.  It's tough to get to that mark (for me) on utilities.  You can write off a portion of your mortgage if you can demonstrate that you have a room dedicated 100% to work, but there are several calculations, rules that have to be computed....again, isn't worth my time.

 

[Captain Cranks]

Any business-related expenses will be subject to the 2% AGI floor on Schedule A.  That is to say, if your AGI is, say, $100,000, your business expenses are not deductible to the extent that they are less than $2,000 (2% of your AGI).  If the business expenses exceed the 2%, they would be deductible to the extent that they exceed the 2%.  This includes things like a home office, unreimbursed travel, etc.  Note that commuting to an office is not deductible travel, though travel to your clients/vendors/etc. could be deductible if it is related to your job and not reimbursed by your employer.  This is all contingent on you itemizing your deductions, first of all, and not being subject to the various limitations on itemized deductions.  It is impossible to say with any real accuracy without having your financial records and knowledge of your tax history.

Someone noted above that the IRS scrutinizes home office deductions more closely than the average person.  My understanding is that this is still correct though erroneous home office claims are less frequent and less scrutinized than in the past.  It may increase your audit risk slightly but not astronomically.  Remember that you need to have a legitimate home office - ie a dedicated space within your home not used for other purposes.

ETA - Jayrod is correct that from a business deduction standpoint, you would have more benefit from being a 1099 contractor.  You would be able to deduct your business expenses without the 2% AGI limitation on Schedule A.  That said, you would also be liable for self-employment tax.  As a W-2 employee, your employer pays 1/2 of your Social Security/Medicare payroll taxes and you are liable for the rest with your payroll withholding.  As a 1099 contractor, you are liable for the entire amount as self-employment tax.

Steve, can I get you to way in real quick on the effective start date of my business?  I'm trying to determine what to capitalize as start-up costs and what I can expense.  

I'll try to make this as brief as possible.  I started a company that acts as a hedge fund manager...let's call it Company A.  Company A solicited investment from private investors and once enough commitments were made, created Investment Fund B.  Funds were closed on Investment Fund B and Company A began managing those funds as Investment Fund B's general partner.  Based on this, I break the process into 3 phases:  1.  Create Company A     2.  Solicit Investment for Investment Fund     3.  Begin money management of Fund.  

The key question is whether phase 2 can be argued to be part of the active operations of the business.  If so, I am assuming I can expense the costs of soliciting investments.      

 

[Chadstroma]

Any business-related expenses will be subject to the 2% AGI floor on Schedule A.  That is to say, if your AGI is, say, $100,000, your business expenses are not deductible to the extent that they are less than $2,000 (2% of your AGI).  If the business expenses exceed the 2%, they would be deductible to the extent that they exceed the 2%.  This includes things like a home office, unreimbursed travel, etc.  Note that commuting to an office is not deductible travel, though travel to your clients/vendors/etc. could be deductible if it is related to your job and not reimbursed by your employer.  This is all contingent on you itemizing your deductions, first of all, and not being subject to the various limitations on itemized deductions.  It is impossible to say with any real accuracy without having your financial records and knowledge of your tax history.

Someone noted above that the IRS scrutinizes home office deductions more closely than the average person.  My understanding is that this is still correct though erroneous home office claims are less frequent and less scrutinized than in the past.  It may increase your audit risk slightly but not astronomically.  Remember that you need to have a legitimate home office - ie a dedicated space within your home not used for other purposes.

ETA - Jayrod is correct that from a business deduction standpoint, you would have more benefit from being a 1099 contractor.  You would be able to deduct your business expenses without the 2% AGI limitation on Schedule A.  That said, you would also be liable for self-employment tax.  As a W-2 employee, your employer pays 1/2 of your Social Security/Medicare payroll taxes and you are liable for the rest with your payroll withholding.  As a 1099 contractor, you are liable for the entire amount as self-employment tax.

AGI?

I already itemize so this would be in addition to what I am already doing. If my home is my office then any travel would be deductible, correct? I do get a separate amount from my base pay to cover business expenses as I see fit, it is part of my pay and I do not report what I use or don't use it for. Would that count as being reimbursed?

I don't fudge on my taxes so I am not too concerned about an audit though obviously who wants to go through that hassle? No one. Except for the people I know who have ended up getting bigger returns after going through them.

Not an option to go to 1099.

 

[The Commish]

Any business-related expenses will be subject to the 2% AGI floor on Schedule A.  That is to say, if your AGI is, say, $100,000, your business expenses are not deductible to the extent that they are less than $2,000 (2% of your AGI).  If the business expenses exceed the 2%, they would be deductible to the extent that they exceed the 2%.  This includes things like a home office, unreimbursed travel, etc.  Note that commuting to an office is not deductible travel, though travel to your clients/vendors/etc. could be deductible if it is related to your job and not reimbursed by your employer.  This is all contingent on you itemizing your deductions, first of all, and not being subject to the various limitations on itemized deductions.  It is impossible to say with any real accuracy without having your financial records and knowledge of your tax history.

Someone noted above that the IRS scrutinizes home office deductions more closely than the average person.  My understanding is that this is still correct though erroneous home office claims are less frequent and less scrutinized than in the past.  It may increase your audit risk slightly but not astronomically.  Remember that you need to have a legitimate home office - ie a dedicated space within your home not used for other purposes.

ETA - Jayrod is correct that from a business deduction standpoint, you would have more benefit from being a 1099 contractor.  You would be able to deduct your business expenses without the 2% AGI limitation on Schedule A.  That said, you would also be liable for self-employment tax.  As a W-2 employee, your employer pays 1/2 of your Social Security/Medicare payroll taxes and you are liable for the rest with your payroll withholding.  As a 1099 contractor, you are liable for the entire amount as self-employment tax.

AGI?

I already itemize so this would be in addition to what I am already doing. If my home is my office then any travel would be deductible, correct? I do get a separate amount from my base pay to cover business expenses as I see fit, it is part of my pay and I do not report what I use or don't use it for. Would that count as being reimbursed?

I don't fudge on my taxes so I am not too concerned about an audit though obviously who wants to go through that hassle? No one. Except for the people I know who have ended up getting bigger returns after going through them.

Not an option to go to 1099.

If I remember correctly, there's a portion where you're asked if you were reimbursed for it, so I imagine that's why they break it down, so for you expenses would have to be 2% over your AGI PLUS whatever the $ amount is they provision for expenses.  After you clear those, then you'd be able to write them off.  If I've read correctly, when it's all said and done, your mileage will be your biggest value towards taxes along with parking.  

 

[Dezbelief]

I would track expenses the first year to see if it is worth it or not. I'm 1099'd and rack up quite a bit of miles on my car. On a vehicle you can deduct actual expenses or a standard rate per mile. I take the per mile rate. Parking and tolls may be outside of that per mile rate, check up on that. I don't have to pay for either in my neck of the woods.

On the home office the 100% office use is strict if you are audited. In the basement example of 700 sq feet if you only use 50 sq ft for the office and leave the rest empty you can deduct for the full 700 sq ft. If you use even 1 sq ft for home storage then only the 50 sq ft is deductible.

 

[Jayrod]

AGI?

I already itemize so this would be in addition to what I am already doing. If my home is my office then any travel would be deductible, correct? I do get a separate amount from my base pay to cover business expenses as I see fit, it is part of my pay and I do not report what I use or don't use it for. Would that count as being reimbursed?

I don't fudge on my taxes so I am not too concerned about an audit though obviously who wants to go through that hassle? No one. Except for the people I know who have ended up getting bigger returns after going through them.

Not an option to go to 1099.

AGI = Adjusted Gross Income - this is the number at the bottom of page 1 of your 1040 tax return.

Only the business expenses over and above 2% of that number are a deduction.  And you also have to reduce your business expenses by anything that is reimbursed.

However, if that "reimbursement" is taxed it may not be considered true reimbursement.   You may not have to reduce your business expenses by that as it is truly just a form of income, no matter what they call it.  I'd consult with your tax professional on that one.

Take note, it is usually best when doing travel expenses to record mileage as opposed to gas & repairs.  You can do one or the other, but not both.

 

[johnnycakes]

AGI = Adjusted Gross Income - this is the number at the bottom of page 1 of your 1040 tax return.

Only the business expenses over and above 2% of that number are a deduction.  And you also have to reduce your business expenses by anything that is reimbursed.

However, if that "reimbursement" is taxed it may not be considered true reimbursement.   You may not have to reduce your business expenses by that as it is truly just a form of income, no matter what they call it.  I'd consult with your tax professional on that one.

Take note, it is usually best when doing travel expenses to record mileage as opposed to gas & repairs.  You can do one or the other, but not both.

What the OP described is a "non-accountable plan"...  the allowance for expenses gets added to W-2 income and no accounting to the employer for the monies spent is necessary.  The expenses are employee business expenses subject to the 2% floor as has been described.  If they were to switch to an accountable plan - requiring receipts for the monies spent and reimbursement of any money received over what was spent - then the expense allowance would not be added to W-2 income and the expenses would be the company's expense, not the employee's. 

Also, fwiw, if you lease your car you cannot use the standard mileage rate.   In that case you must deduct actual costs.    

 

[Chadstroma]

Again, I'm not a tax professional here but I worked from home for a couple of years. IIRC, according to the IRS, you can deduct the home office only if your company doesn't really have a local office that you can use. I think that is pretty open and subject to interpretation though. Regarding the home office itself, you can only deduct the space used for the home office. So if your home is 2100 sqft and your basement, which is your exclusive home office, is 700sqft then only that 700 sqft is eligible. Any deduction will stem from that space utilized. I'm reluctant to say that 1/3 of your rent/mortgage is eligible for the deduction in this example but it may very well be. 

I just use a calendar to schedule and have the addresses handy. I'd track that way.

Google voice is a VOIP feature that can be attached to a Gmail account. It would give you a real # and could be added as an app on your phone. If you have Gmail then you could have it. No need to get the second phone as a result.

Sounds like the "office space" won't be worth the worry- since I plan on just setting up a desk in the corner of my basement to work out of. From what I am hearing the other use of the bathroom would mean the space would be very small and I am sure not really worth much in deductions or the extra possibility of an audit.

 

[Chadstroma]

I did get clarification today that the amount I get separate for business expenses, though taxed, is not regular income in that it does not factor into benefits (pension, 401k, etc). Does this change anything discussed before inasmuch as deductions or anything I should be aware of for tax purposes?

 

[Poke_4_Life]

Sounds like the "office space" won't be worth the worry- since I plan on just setting up a desk in the corner of my basement to work out of. From what I am hearing the other use of the bathroom would mean the space would be very small and I am sure not really worth much in deductions or the extra possibility of an audit.

Nobody has mentioned it yet, but the portion of your sqft used for your office can also be included for utilities.  So if 20% of your house is your home office, then 20% of your utility bills can also be claimed.  

As for the audit risk, I've been claiming a home office for 7 years and have yet to be audited.  My wife works out of our house or her car.  We claim her office and then her mileage that she's not reimbursed for (her employer reimburses for 1/2 the mileage rate, which is stupid).

 

[The Commish]

I did get clarification today that the amount I get separate for business expenses, though taxed, is not regular income in that it does not factor into benefits (pension, 401k, etc). Does this change anything discussed before inasmuch as deductions or anything I should be aware of for tax purposes?

Shouldn't....but that sucks for you with respect to benefits.  Whatever that total is you are paid for these things will be part of the questions on the tax forms...standard stuff like X router cost me $65.  The first question is "were you reimbursed for that expense?".  Answering yes pretty much wipes that line item off any sort of impact to your taxes.

 

[Chadstroma]

Shouldn't....but that sucks for you with respect to benefits.  Whatever that total is you are paid for these things will be part of the questions on the tax forms...standard stuff like X router cost me $65.  The first question is "were you reimbursed for that expense?".  Answering yes pretty much wipes that line item off any sort of impact to your taxes.

But is that considered "reimbursed" since I am just given taxed money earmarked for expenses. I am not clear on that. My thinking says it is not reimbursement but we are talking about taxes and thinking doesn't really go hand in hand there.

 

[bueno]

Get an accountant to walk you through all this.

 

[SlimShady]

Form an LLC and write everything off