News and Updates for You
Here is what you can find in the most recent newsletter!
- Biden's Tax Plan
- Turn Your Home into a Tax Deduction
- Steering Clear of Money-Making Scams
Biden's Tax Plan
Since the announcement of Biden becoming the president-elect, many Americans are probably wondering if their taxes are going to change. The answer to that questions is: it depends. Biden intends to raise taxes by nearly $3.5 trillion over the next ten years on corporations and individuals earning more than $400,000 annually. On the other hand, he also has proposed a package of incentives aimed at cutting taxes for lower-income taxpayers, including refundable credits for everything from paying childcare costs to buying a home.
Proposed Tax Increases:
- Raising one of the seven tax rates. The top rate of 37% would jump to 39.6%.
- Increasing the top rate on long-term capital gains and qualified dividends from 20% to 39.6% for taxpayers earning more than $1 million.
- Securing the solvency of the Social Security fund by lifting the cap on the Social Security payroll tax but only on wages in excess of $400,000.
- Phase-out the Qualified Business Income deduction for those taxpayers with taxable income in excess of $400,000.
- For itemized deductions, reinstating the Pease limitation for those earning in excess of $400,000. He also would cap the benefit of itemized deductions at a 28% rate.
- Raising the corporate tax rate to 28% and requiring corporations with income in excess of $100 million to pay tax of 15% on its financial statement income.
- Raising Estate Tax to 45%.
Proposed Tax Cuts:
- Increasing the child tax credit to $3,600 per child and would be fully refundable.
- Increasing the child and dependent care credit to a maximum of $8,000 or $16,000 per family and would be 50% refundable.
- A new credit of $5,000 would be created for caregivers of elderly relatives.
- A new credit of up to $15,000 for first-time homebuyers
- An expansion of the existing premium tax credit that makes state-sponsored health plans more affordable.
- A renter's credit to reduce rent and utilities to 30% of income.
- An expansion of the earned income credit to older taxpayers.
Turning Your Home Office Into a Tax Deduction
If you are working from home for the first time in 2020, you may be wondering if your home office is tax deductible. The bad news? If you’re working from home for an employer, you normally can’t deduct your home office expenses.
Here are three options for solving your problem of being a W-2 employee and qualifying to deduct your home office expenses on your tax return.
- Become an independent contractor. The easiest way to deduct your home office expenses is by switching from being an employee to an independent contractor. With a number of firms cutting pay and hours due to the pandemic, it may be worth exploring. There’s a big warning label if you go this route, however. You will need to account for lost benefits such as health insurance, and the additional cost of self-employment taxes. If you can meet the IRS requirements for becoming an independent contractor, it may be worth doing the math and considering all the deductions your home office may make available to you.
- Start a side business. If becoming an independent contractor for your current employer isn’t an option, consider starting a side business. You can deduct all business-related expenses on your tax return, including your home office expenses. If you go this route, ensure your home office is in a different location in your home than your other work space.
- Consider your entire household. Even if you don't qualify for the home office deduction, maybe someone else living in your home does qualify. So look into your options to see if a family member can take advantage of the home office deduction.
What if none of these options for deducting home office expenses are feasible for you? While you won't be able to deduct your home office expenses on your tax return, you may still be able to end up financially ahead with the help of your employer.
There's no question you are picking up some of the expense of your home office with added electrical, heating, telephone, internet and other expenses. One way companies are solving this is by allowing employees to submit valid expense reports to cover some of these extra costs. So if you're stuck working as a W-2 employee, look into whether your employer offers reimbursement for home office expenses.
Steering Clear of Money-Making Scams
Scammers are targeting people looking to make money while stuck at home. The Federal Trade Commission (FTC) says to steer clear from the following money-making scams:
- At-Home Medical Billing Businesses. Many medical billing business opportunities are worthless. Their promoters don’t tell the truth about earnings potential and fail to provide key information.
- Envelope-Stuffing Schemes. Offers that promise quick and easy income from stuffing envelopes at home virtually never pay off.
- Telemarketing Resale Scams. Selling brand-name merchandise from home can be a great way to work at home making some extra money. But fraudsters sometimes call to lure you into a resale proposition. They’re the ones who make the money – and they make it from you.
- Work-at-Home Businesses. Many work-at-home opportunities are promoted by scam artists. If you pay in, it’s likely that you will spend more than you can earn.
How to Protect Yourself
- Do your research. Talk to other people and read reviews about the work-from-home opportunity you are considering. Also consider checking out a company with your local consumer protection agency, your state’s Attorney General office or the Better Business Bureau.
- Request the FTC’s one-page disclosure document. Sellers of work-from-home opportunities are required by the FTC to give you a one-page disclosure document that offers key pieces of information about the opportunity.
- Ask follow-up questions. In addition to reviewing the disclosure document, ask the sellers various follow-up questions such as the following: What tasks will you have to perform? Will you be paid a salary or be on commission? What is the basis for the company’s claims about what you can earn? When will you get your first paycheck?