Dealing with Tax Issues While Telecommuting

Tax Professionals Resource
September 24, 2012 — 1,583 views  
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Working from home can satisfy many needs for you. The telecommuting option is generally becoming more popular all the time, but it carries with it some added complexities. There is some messiness with regard to taxation that you may not have been aware of before starting to work from home. For example, you can deduct expenses that go toward your job. The trouble is answering the questions about what qualifies for work use. Maybe that home office is not only used for work. In that case, are you allowed to deduct expenses related to it? You need to take these and other considerations regarding taxation before entering into telecommuting full time.

First, you should educate yourself about exactly what can be deducted from taxes. Your office must be a completely separate space from your living quarters to qualify. It must be used much of the day and very regularly. It must act as your main place of business. These are all the same requirements you would have to meet if you were self-employed or an independent contractor. As a telecommuter who is an employee of a company, you must prove that your working situation serves the convenience of your employer. This means that your employer does not have significant dedicated office space for you. Avoiding the long drive into work is not a good enough excuse for the IRS. The situation only gets more complicated if you are both a telecommuter and are self-employed in your own business. It may go so far as to require separate offices for each job.

What kinds of deduction can you take as a telecommuter? Many types of supplies and services can be deducted for those who are self-employed. Furniture and equipment can also be deducted. Telecommuters are able to access the same benefits but only if the expense is used for their job. Essentially, any purchases you make for your home office need to be distinct from purchases you make for personal reasons. This could mean going so far as to require separate Internet and phone connections for your home and office. Usually, it is more valuable to seek reimbursement for office expenses from your employer than through tax deductions.

State tax laws can also make navigating your business life difficult. If you are a resident in one state but are employed in another, how do you deal with state income tax? This is an issue that has yet to be fully resolved by legal action. Some state legislatures have required businesses to file corporate tax returns because they had only one employee telecommuting. 

All in all, it is important that you remain diligent on the issues of taxation if you are considering telecommuting. There are many benefits associated with this way of life, but taxation will not likely be strongly in your favor.

Tax Professionals Resource