Working from home? Claim your Home Office Deductions

Working from home? Claim your Home Office Deductions

by | Jan 9, 2018 | Deduction & Credits

Working from home? Claim your Home Office Deductions

Working from home .claim your Home Office Deductions.Some of us are quite lazy to drive/ride to work every day, so we prefer to set up office at home. Well, jokes apart, some of the small business that operates right out of their homes qualify for deductions. But the fear of audit keeps them away from any such declarations. But in all fairness, if it is genuine and you deserve it, there are no reasons as to why you should not aim for it.

The following are some pointers that you should keep in mind before proceeding with claiming home office deductions.

Exclusive Usage

This acts as the first line of defense.

If you want to opt for home office deductions, you must have a space dedicated to the business use.

Though there are no specifications as to the room size or number of rooms, IRS is very particular regarding a dedicated space for work. As long as there is clear demarcation between work and living space it should be fine.

You should not be using the room as a backup room or double up room for other activities. For an instance, if you work in the room for 8 odd hours a day and leave it up for parties or children activities otherwise, you would end up violating IRS norms.

Regular Usage

Regular usage is one of those things, which is a bit difficult to draw a line on, but in general, you should be using the home office on a regular basis.

Thus, using a usually empty room for one or two business related stuff once a month is a big no, as you would fail the IRS test.

Again, the definition and a clear line would change depending on the scenario and it is at IRS’ discretion.

Primary Business Place

Apart from exclusive and regular use, the workplace should either be a place where you have regular interaction with customers and clients or the primary location for business. There are a few individuals who take up part-time business from their home. Even if you work for majorly in another office, the time spent at your home office will help you qualify.

One has to be a bit careful when it comes to the definition of business over here. You might be an investor who deals in trading for your own benefit.

Declaring your home as an office for that purpose will most probably mark you as not eligible.

Though if you have several properties and have rented them out, you may qualify for home office deductions if you use the room exclusively for this purpose. One of the most important things over here to remember is that the office should be used as a principal place for business and not necessarily principal office.

Storage and Day care

If you want to use your house to provide day care facilities for either children or elderly people, you should primarily meet the requirements of your local and state administration. The exclusive usage clause does not apply to daycare centers. Meaning you might you the place for day care activities for the most part and use it for personal usage post that timing.

Some people use their basement as the storage facility for their business.

Using the basement or any other space regularly for such activities would qualify you for home office deductions, but that should be your only business location.

If you qualify for home office deductions under any of the above, it is worth investing your time in getting the qualification. Simply because you will end up saving a decent amount of money by this exercise.

 

Check out details about Mortgage & Housing Deductions

What is Adjusted Gross Income (AGI)

What is Adjusted Gross Income (AGI)

by | Jan 5, 2018 | Investment & Income

What is Adjusted Gross Income (AGI)

Most of us have come across the term Adjusted Gross Income or AGI and know that it has got something to do with taxes. But what is it exactly and how it impacts your financial life is what we are going to look into today. The simplest definition of AGI is that it is a number that the IRS look at closely so as to determine your tax liabilities.

Behind the Scenes

AGI or Adjusted Gross Income is calculated after adding up all of your verified and qualified income and then detracting all the deductions from the same. Thus, a lower AGI is what one must aim for, as it lets you benefit from lower tax bills along with the ability to qualify for tax benefits. Now that we know it can help us reduce the taxes, how is it exactly calculated?

  • You should start off with determining your Gross income. Essentially, the total amount of money that you pocketed during a specific year.
  • It usually includes salary, wage, rent from property, capital gains, any form of royalties, social security benefits that are taxable.
  • You need to deduct various contributions from it and thus you achieve on the AGI.
  • Deductions or contributions such as contribution towards retirement, interest amount paid for education loans, educator expenses incurred some of the medical expenses, health insurance premiums etc. qualify for this.

Should you be bothered?

Adjusted Gross Income is one of the most critical values when it comes to taxes for a particular financial year. You might have come across the term net income, which is nothing but a synonym for adjusted gross income. Why so? Well, because it is the net amount on which all the taxes are calculated, once the income and deductions are looked after. This is one of the main reasons behind the adjusted gross income being featured in the first page of Form 1040 and Form 1040A as provided by theIRS.  Another term that comes into the foray of discussion is Modified Adjusted Gross Income or MAGI. MAGI adds a few of the deduction types back and helps the IRS determine your eligibility for some the initiatives. Here is why you should have a faint grasp of both.

  • Understanding the MAGI helps you figure out if or not you qualify for the Roth IRA contributions. If your income crosses a certain limit, then you cannot invest in Roth IRA.
  • Certain contributions such as HSA or funds towards 401(k) at work place will help you reduce your MAGI and thus make you eligible for some of the tax benefits.
  • Another example would be you holding on to some stocks for quite some time before selling them. This would push your MAGI and in turn making you not eligible for certain tax cuts. Knowing your MAGI earlier would have prevented this.
  • If you are someone who likes to do charity and keep a track of it, knowing your AGI becomes even more crucial. If your AGI is above the expected limits, then keeping track or documenting these charities would be of no use. It of course shouldn’t stop you from charity.
  • For individuals who are retirees, withdrawing IRA without checking the AGI can result in higher taxation.

One cannot emphasize enough on the importance of tax planning in advance. It not only helps you have a worry-free end of the year but also plan for missed opportunities like the ones mentioned above. Understanding AGI and even MAGI is the first step towards a successful tax plan.

Is Virtual Currency Taxable???

Is Virtual Currency Taxable???

by | Jan 3, 2018 | Virtual Currency

Is Virtual Currency Taxable???

Virtual Currency ,If you haven’t heard of the phenomenal rise of the crypto currency Bitcoin, then you are missing out on something. Right from its mysterious founder(s) to its astounding growth this year, Bitcoin is intriguing, to say the least.One of the prime reasons as to why it is attracting more investors by the day is that you can convert the virtual currency into real money.

Yes, you can purchase Bitcoin or any other virtual currency and trade them for good old real money. This type of transaction allows you to book profit should there be a rise in the price of the virtual currency. But that also attracts the attention of IRS and we will discuss how to address those. Depending on your involvement with virtual currency, the tax implications change.

Goods and Services

Though the number of vendors supporting Bitcoin is not something to brag about, you will still find plenty of them. If you purchase any goods or services with the help of Bitcoin or any other virtual currency for that matter it must reflect in your W2 Form. Here is what you need to do.

  • Convert the equivalent of virtual currency on the day of purchase and keep a note of the same.
  • If your employer pays you in virtual currency, they are subject to same taxes as wages in dollars.

It is important to declare the income in dollars in your W2 Form, irrespective of which virtual currency you dealt with. Self-employed individuals must include the same in their tax returns.

Investment

Though most virtual currencies are still in their nascent forms, quite a few of the investors are taking them are serious investments. They believe that the money invested in virtual currency will yield them great returns in the future; which have proven to be correct in the case of Bitcoin as of now. Should you plan to do the same, they would fall under the same category as your normal stocks, capital assets and bonds do. You are liable to pay capital gain or loss tax on your virtual currency in such a scenario.

Mining

As of now, there are two ways by which you can get your hands on the virtual currencies. First is the good old method where you buy the virtual currency using real currency. The second method is called mining. The later uses computing power to validate the transactions and keep a track of all transactions. Essentially becoming a part of the block chain.

Should you plan to mine virtual currencies or have already done so, you are liable to pay taxes as well. The IRS clears it out that if you receive any payment in the form of virtual currency by mining, it must be part of your gross income.

To calculate your liability, you need to find out the fair dollar value of the virtual currency on the day you received the payments. The same must then be added to your gross income and tax calculated on the same. This all holds well if you are an employee. For self-employed individuals, the returns from mining activity must be part of gross income. Standard deductibles are applicable. The same is also subject to self-employment taxes.

If you are someone who deals with virtual currencies or is planning to do so, the above are all the tax liabilities you must keep in your mind. It is also crucial to understand that these tax liabilities hold good for the current time. The IRS might update the same, based on virtual currency and its activities. It is a good idea to regularly check for these tax liabilities.