Do You Qualify for a Home Office Deduction?

Do You Qualify for a Home Office Deduction?

While you may be working from home due to the pandemic, you do not automatically qualify for a home office deduction. For example, if you work as an employee for a company (that’s not yours), you generally cannot claim the home office deduction.

What You Need to Know

  • The home office deduction can be taken whether you own or rent your home.
  • The term “home” includes:
    • A house, apartment, condominium, mobile home, boat or similar property that provides basic living accommodations.
    • A separate structure on the property such as an unattached garage, studio, barn or greenhouse.
  • Any portion of a home used exclusively as a hotel, motel, inn or similar establishment does NOT qualify as a “home” for purposes of the home office deduction.
  • Generally, your home must meet two basic requirements to qualify:
    • A portion of the home must be used exclusively for conducting business on a regular basis. For example, if you use an extra room to run your business, you can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
    • The home (or room) must be your principal place of business. You can meet this requirement if administrative or management activities are conducted, and there is no other location to perform these duties. So if you conduct business outside of your home but also use your home to conduct business, you may still qualify for a home office deduction.
  • Certain expenses can be deducted, including mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.

If you qualify for a home office deduction, you may choose one of two methods to calculate your deduction:

  1. Simplified Method. This allows a flat rate of $5 per square foot, which is limited to a maximum size of 300 square feet and a maximum deduction $1,500.
  2. Regular Method. This provides for a deductions of indirect expenses based on the percentage of the home devoted to business use, while direct expenses are deducted in full.

If you’re unsure of your situation, contact us. We can help you determine if your home office and related expenses are deductible or not.

2022 Social Security Benefits Increase 5.9%

More than 72 million Social Security and Supplemental Security Income (SSI) recipients will receive a 5.9% cost-of-living adjustment (COLA) for 2022 — the largest increase in nearly 40 years. The annual Social Security COLA is tied to the Consumer Price Index. Also in 2022, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000 from $142,800. Click here for a detailed 2022 Social Security Fact Sheet.

U.S. Inflation Accelerates

The Labor Department reported last month’s consumer-price index — which measures what consumers pay for goods and services — rose by 5.4% from a year earlier. Price increases from pandemic-related labor and materials shortages, including disrupted supply chains, have been pushing the increase. What’s more, spending jumped 11.9% in the second quarter as demand surged due to more people receiving Covid-19 vaccinations, businesses reopening and trillions of dollars in federal aid entering the economy.

IRS Video Tax Tip

Check out this IRS video to learn about the special tax benefits that apply to members of the Armed Forces. You can also get a copy of the IRS’ Armed Forces’ Tax Guide.

Tax Benefits Expanded for Your 2021 Charitable Donations

Tax Benefits Expanded for Your 2021 Charitable Donations

T he Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, provides several deductions for individuals and businesses who give to charity. The law generally extends — through the end of 2021 — temporary tax changes originally enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here’s what you need to know:

Deductions If You Do NOT Itemize

Generally, if you take the standard deduction, you cannot deduct your charitable contributions. The law change, however, allows you to claim a deduction of up to $300 ($600 for married filing jointly) for cash contributions made to qualifying charitable organizations.

Most cash donations qualify, except those:

  • Made to a supporting organization.
  • Intended to help establish or maintain a donor advised fund.
  • Carried forward from prior years.
  • Made to most private foundations.
  • Made to charitable remainder trusts.

(These exceptions also apply to taxpayers who itemize their deductions.)

Cash contributions include those made by check, credit card or debit card, as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions do NOT include the value of volunteer services, securities, household items or other property.

Deductions If You DO Itemize

If you itemize, you can generally deduct your charitable contributions, but are limited to 20% to 60% of your adjusted gross income, and by type of contribution and charity. The law change now allows you to apply up to 100% of your AGI for qualifying 2021 contributions.

This 100% limit is not automatic, however. You must choose to take the new limit; otherwise, the usual limit applies. And your other charitable contribution deductions reduce the maximum amount allowed under this election.

Deductions for Corporations

The law now permits C-Corps to apply an increased limit of 25% of taxable income for charitable cash contributions made to eligible charities during calendar year 2021. Again, the increased limit is not automatic — C-Corps must choose the increased corporate limit on a contribution-by-contribution basis.

Deductions for Food Inventory

If you own a business that donates food inventory, you may qualify for increased deduction limits. For contributions made in 2021, the limit is increased to 25%. For C-Corps, the 25% limit is based on taxable income. For other businesses (i.e., Sole Proprietorships, Partnerships and S-Corps), the limit is based on total net income for the year. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

Keep Good Records

Note that special record-keeping rules apply when claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity, and retaining a cancelled check or credit card receipt for contributions of cash. For donations of property, additional record-keeping rules may include filing a Form 8283 and obtaining a qualified appraisal in some cases.

For more details on how to apply the percentage limits and what records you need to keep, contact us today.

Set a Calendar Reminder

Need help remembering when payments are due to the IRS? You can subscribe to the IRS’ Small Business Calendar using Outlook 2007, Outlook 2010 or Mac iCal. Outlook 2003 does not have the ability to subscribe, but you can download the tax events from the calendar. Visit this link for more details.

Are Your Social Security Benefits Taxable?

If you earn income from pensions, wages, interest and more, you may have to pay federal income tax on a portion of your Social Security benefits. Social Security benefits include monthly retirement, survivor and disability benefits. They do NOT include supplemental security income payments, which are not taxable.

The portion of your Social Security benefits that are taxable depends on your income and filing status. To determine if your benefits are taxable, add half of the Social Security you collected during the year to your other income.

Up to 50% of your benefits may be taxable if the total equals:

  • $25,000-$34,000, and you are single/head of household/widow.
  • $32,000-$44,000, and you are married filing jointly.

Up to 85% of your benefits may be taxable if the total is more than:

  • $34,000, and you are single/head of household/widow.
  • $44,000, and you are married filing jointly.

We’re happy to help you determine whether your benefits are taxable or not. Just give us a call to set up an appointment.

Video Tax Tip

Check out this IRS video for details on claiming the Home Office Deduction: What’s Allowable?

FAQs About the Advance Child Tax Credit

FAQs About the Advance Child Tax Credit

We’re still getting questions from some folks about the Advance Child Tax Credit that they are receiving. Read below for some answers to common questions we’ve received.

Q: What is it?

A: The Advance Child Tax Credit provides you with an ADVANCE payment of the child tax credit you can claim on your 2021 tax return (filed in early 2022). It is not extra money provided by the government, but rather just an advance of the amount you would typically receive as part of your refund next year.

Q: How is this different than the previous Child Tax Credit?

A: Previously, you had to wait until you filed your tax return to receive the credit. This year, as part of COVID-19 tax law changes, you may receive the credit in monthly payments from July through December. What’s more, the amount has been increased for 2021 only to $3,600 for children under age 6 and to $3,000 for children between 6 and 17.

Q: Who qualifies?

A: You may receive these payments if your dependent child, stepchild, foster child, sibling or other dependent relative does not turn 18 before January 1, 2022, and also:

  • Does not provide more than half of his or her own support during 2021.
  • Lives with you for more than half of tax year 2021.
  • Is a U.S. citizen, U.S. national, or U.S. resident alien.

Q: Can I stop the payments?

A: Yes. If you don’t want to receive the monthly Advance Child Tax Credit payments because you would rather claim the full credit when you file your 2021 tax return, or because you will not be eligible for the credit, you can unenroll through the Child Tax Credit Update Portal. (Note: If you are married and file jointly, BOTH you and your spouse must unenroll individually.)

Q: Will receiving the Advance Child Tax Credit payments affect my other government benefits?

A: No. These payments cannot be counted as income to determine if you are eligible for benefits or assistance, or how much you can receive under any federal, state or local program.

Q: Are the Advance Child Tax Credit payments taxable?

A: No. Because these payments are an advance on your 2021 child tax credit, they are not income and will not be reported as income on your 2021 tax return. However, the total amount of payments you receive is based on the IRS’s estimate of your 2021 child tax credit (generally using information from your previous tax returns). If you receive more in payment than you are eligible to claim on your tax return, you may have to repay the excess amount.

More Questions? Ask Us!

If you have additional questions about the Advance Child Tax Credit, don’t hesitate to contact us. We’ll be happy to help you work through the details. You may also check the IRS’s website for more details.

Premier CPA Services 10 year anniversary logo

May 31 was our 10-Year Anniversary! To celebrate, we will be offering some great giveaways to our clients and Facebook friends. Be sure to follow us and stay tuned!

IRS Issues ERC Safe Harbor

The IRS issued a safe harbor allowing employers to exclude certain amounts from their gross receipts solely for determining eligibility for the Employee Retention Credit (ERC). As an employer, you can elect to apply the safe harbor by excluding these amounts to determine whether you are an eligible employer for a calendar. These amounts include:

  • The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
  • Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
  • Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.

You are not required to apply this safe harbor, but may do so on your employment tax return (Form 941 or Form 941-X). If you have questions about the ERC, just give us a call at 706-632-7850.

Social Security 2020 Annual Report

Last year, Social Security paid benefits of $1.096 trillion to approximately 65 million beneficiaries. Meanwhile, an estimated 175 million people paid into Social Security through payroll taxes.

However, the Social Security Administration projects its total annual costs in 2021 will exceed its total annual income for the first time since 1982. And if Congress does not act soon, trust fund reserves will be depleted:

  • Old-Age and Survivors Insurance (OASI) will be depleted in 2033, with 76% of benefits payable at that time.
  • Disability Insurance (DI) Trust Fund will be depleted in 2057, with 91% of benefits still payable.

Video Tax Tip

The IRS Small Business Tax Workshop is a series of online training videos covering tax topics for new and established small business owners.

Need to Know: New Lodging Tax Begins on July 1

Need to Know: New Lodging Tax Begins on July 1

Beginning July 1, 2021, owners of certain short-term rentals must begin paying hotel taxes under House Bill 317, which was signed into law by Governor Kemp last month. The law requires that home rental companies, such as Airbnb and VRBO, collect Georgia’s $5-per-night lodging tax as well as local excise taxes.

House Bill 317 imposes the $5 fee on all lodging facilities and rooms except those that do not provide shelter and extended-stay rentals (30+ days). The costs will be passed on to renters in their bills.

Lodging Tax Expanded

In short, House Bill 317 revised the state definition of “innkeeper” (used to calculate lodging excise taxes) to include Airbnb and other marketplace-based innkeepers. It adds a $5 nightly tax to short term rentals in addition to the sales tax, and Fannin County and City of Blue Ridge lodging taxes already levied. The county’s tax rate is currently 6%, while rentals within the city limits pay 8%.

Total lodging taxes for all local rentals are now:

  • 7% Sales Tax
  • 6% Fannin County Lodging Tax
  • 2% City of Blue Ridge Lodging Tax (if applicable)
  • $5-per-night Hotel Tax

More Money for Local Spending

The lodging tax is projected to raise $17 million for the state in 2022, while local governments could receive $20 to $30 million annually. In Fannin County, the hotel/motel tax is split 50/50 with the Chamber of Commerce, with the county funds spent mostly on public safety projects. The Chamber’s 50% is spent on marketing and tourism, which helped generate $273.3 million in direct visitor spending in 2020, including $65.6 million in lodging.

If you need assistance computing or filing lodging and excise taxes, please contact us at (706) 632-7850. We can help you update your systems for the new tax rates. 

Where’s My Refund?

Still waiting on your federal or state tax refund? You can start checking your federal refund status within 24 hours after an e-filed return is received by using the Where’s My Refund? tool on the IRS website. The tool provides a personalized refund date after the return is processed and a refund is approved.

The IRS updates the Where’s My Refund? tool once a day, usually overnight, so you don’t need to check the status more often. You will need to allow time for your financial institution to post the refund to your account or for it to be delivered by mail.

To Use the Tool, You Will Need:

  • Your Social Security number or Individual Taxpayer Identification number
  • Your tax filing status
  • The exact amount of the refund claimed on your tax return

Where’s My Refund? Links:

Reporting Tip Income

Generally, income you receive from any source, such as tips, is taxable. This includes:

  • Tips directly from customers.
  • Tips added using credit cards.
  • Tips from a tip-splitting arrangement with other employees.
  • Non-cash tips, such as tickets, passes or other items of value.

If you receive $20 or more in tips in any one month, you must report your tips for that month to your employer by the 10th day of the next month. Your employer must withhold federal income, Social Security and Medicare taxes on your reported tips.

Retirement Planning: Are Your Social Security Benefits Taxable?

Retirement Planning: Are Your Social Security Benefits Taxable?

If you are retired now or planning on retiring soon, you’ll need to determine if any of your Social Security benefits will be taxed. It’s an important part of figuring your income and expenses during this time of your life.

Since 1984, Social Security beneficiaries with total incomes exceeding certain thresholds have been required to pay federal income tax on some of their benefit income. And because those income thresholds have remained unchanged while wages have increased, the proportion of beneficiaries who pay income tax has risen over time. On average, more than half of beneficiaries typically owe federal income tax on part of their Social Security benefits.

Will You Have to Pay?

Here’s how to determine if your Social Security benefits are taxable:

Add one-half of your (and your spouse’s, if married) Social Security income to all your other income, including pensions, wages, interest, dividends and capital gains.

  • If you’re single and your total added-up income equals more than $25,000, then part of your Social Security benefits may be taxable.
  • If you’re married filing jointly and your total income equals more than $32,000, then part of your Social Security benefits may be taxable.

Up to 50% of your benefits may be taxable if you are:

  • Filing single, head of household, or qualifying widow or widower with $25,000 to $34,000 income.
  • Married filing separately and lived apart from your spouse with $25,000 to $34,000 income.
  • Married filing jointly with $32,000 to $44,000 income.

Up to 85% of your benefits may be taxable if you are:

  • Filing single, head of household, or qualifying widow or widower with more than $34,000 income.
  • Married filing jointly with more than $44,000 income.
  • Married filing separately and lived apart from your spouse with more than $34,000 income.
  • Married filing separately and lived with your spouse at any time during the past year.

If you’re like most, a certain percentage of your monthly retirement, survivor and/or disability benefits is potentially taxable, depending on your income and filing status. Of course, there are a lot of other factors that go into figuring your income (and expenses) during retirement. And all of that information can help you figure out the best time for you to retire.

We’re here to help you make those important calculations — and ensure they’re correct — so you can enjoy your retirement without worrying about how to pay for it. Contact us when you’re ready.

Rollover Relief for RMDs

 

If you already took a Required Minimum Distribution (RMD) this year from certain types of retirement accounts, you can roll those funds back into your retirement account, thanks to the CARES Act. The 60-day RMD rollover period has been extended to August 31, 2020.

In addition to rollovers, this also applies if you are an IRA owner or beneficiary who has already received an RMD distribution this year. You can repay the distribution to the IRA by August 31, 2020. Further, this repayment is NOT subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

This relief applies if you had an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA. It also applies if you turned 70½ in 2019 and would have had to take your first RMD by April 1, 2020. Note that the waiver does NOT apply to defined-benefit plans.

If you have any questions about this RMD relief, please don’t hesitate to contact us.

 

MONEY BRIEF #1

The PPP loan deadline has been extended to August 8, 2020, after being signed by President Trump on Saturday. This 5-week extension re-opens the application window for the Paycheck Protection Program (PPP), keeping open a source of funding for struggling small businesses while Congress works on a second, more targeted funding program. The SBA had stopped accepting loan applications on June 30 before the extension was approved. As of June 30, the SBA had approved more than $520 billion in PPP funding, with approximately $129 billion in funds remaining available.

MONEY BRIEF #2

If you received an Economic Impact Payment, you should keep Notice 1444, Your Economic Impact Payment, with your tax records.

Notice 1444 provides details about the amount of your payment, how the payment was made and how to report any payment that wasn’t received. The IRS mailed this notice to your last known address within 15 days after sending the EIP. It’s especially important to keep this notice if you think your payment amount is wrong.

When you file your 2020 tax return, we’ll use your Notice 1444 to claim any additional credits, if you are eligible for them. Keep this notice on hand with your other important tax records, including W-2s, 1099s, and other income documents and records. Remember, you should be keeping copies of your past tax returns and supporting documents for at least three years.

Georgia Loves Its Retirees!

Georgia Loves Its Retirees!

The Peach State is among the top 10 tax-friendly states for retirees, as ranked by Kiplinger in 2017. Social Security income is exempt from Georgia state taxes, as is up to $35,000 of most types of retirement income for anyone age 62 to 64. When you hit 65, the exemption rises to $65,000 per taxpayer.

Eligible retirement income includes pensions and annuities, interest, dividends, net income from rental property, capital gains, royalties, pensions, annuities and the first $4,000 of wages and other earned income. Many Georgia seniors can also claim property tax exemptions above and beyond normal homestead exemptions.

Social Security Tax-Smarts

Just because Social Security benefits aren’t taxed at the state level in Georgia doesn’t mean you’re off the hook. Uncle Sam is probably going to want a bite, and the amount subject to taxes will be calculated on a sliding scale based on your income.

Coordination Is Everything

Because the tax rules focus so much on income, it’s important to coordinate when you start taking Social Security benefits. You’ll want to weigh when to take benefits with when you expect to receive income from other sources.

For example, you might be tempted to start taking benefits as early as possible — even if you’re still working. The gotcha here is that the wage income you’re earning in that paycheck can easily bump you over the income thresholds at which your benefits will become taxable. Even worse, you’re likely to be in a higher tax bracket because you’re still working, so the tax hit will be a double whammy. Waiting to claim benefits until after you’ve quit working may be smarter, but it really all depends on your financial situation.

One Size Does Not Fit All

The best retirement income strategy varies based on your individual circumstances, so it’s impossible to give one-size-fits-all advice. But we can help you think through your situation — including how to navigate the Social Security taxation rules and how to reduce the amount you have to pay to Uncle Sam. Just call the office to make an appointment today.

(Source: smartasset.com/retirement/georgia-retirement-taxes)

Visit SSA.Gov
You can get a good estimate of your future Social Security benefits by looking at your most recent Social Security statement. To check it online, you’ll just need to create an account at www.ssa.gov. There’s a ton of valuable information here in addition to benefit estimates.

Social Security Fast Facts

Did you know …

  • President Franklin D. Roosevelt signed the Social Security Act into law on August 14, 1935.
  • Ida M. Fuller, a retired legal secretary in Vermont, was the first person to collect Social Security; her check, paid on January 1, 1940, was for $22.54.
  • As of December 31, 2018, about 176 million people were paying Social Security taxes, and about 63 million were receiving monthly Social Security benefits.
  • To qualify for Social Security retirement benefits, you must be at least 62 and have paid into the system for 10+ years.
  • The longer you wait to collect Social Security (up to age 70), the higher the monthly benefit you’ll receive.
  • Your spouse and/or ex-spouse may be eligible for benefits based on your earnings record.
  • Social Security may provide benefits to your spouse and younger children in the event of your death.
  • If you can’t work due to a long-term disability, you may be eligible for Social Security disability benefits.