Working from home (WFH) has its upsides. No commute. A cozier work space. A little more flexibility in terms of how you work. (Want to work in your PJs? Go for it!)
For those who have the option, working from home could also give you a chance to level up your savings. If you’re spending less on things like transportation, your morning brew and eating out, you could have a little more money in your pocket each month.
While these perks can be a game-changer, remote work can also raise some complex tax questions.
For instance, what are you allowed to deduct? And if you’ve been working out of your second home that’s in a different state than where your employer is based, what does that mean for your taxes?
Whether you’re in a hybrid or full-time WFH situation, it’s important to understand your potential tax obligations so that you can file your returns correctly.
After all, no one likes surprises during tax season! So here are some questions you may want to ask a tax professional before starting on your taxes this year.
Some people have opted to get out of the city and work from their vacation homes for a while. Hey, we get it – if you’re able to work from your favorite vacation spot, that’s pretty sweet!
Now, here’s the thing: If you’re working out of a vacation home that is located in a different state than where you primarily live and work – even if only for a few months – this could affect your state income tax obligations.
That’s because each state has its own tax rules for how they deal with remote workers.
If you live in one state, yet you’ve earned money in another state, you may have to file a nonresident state tax return depending on the state’s filing requirements.
Certain states (like New York) expect nonresidents to pay taxes if they’ve earned income within their borders. Keep in mind this is in addition to any income tax you pay to your home state.
In other words, there’s potential for a double (tax) whammy. But you might be able to get a tax credit from your home state to reduce or avoid the double taxation.
Good to know: While this article is limited to the double taxation of nonresidents on income incurred within a state, it’s important to note that it’s also possible that a person can be considered a statutory resident of one state and a domiciled resident of another. This could also lead to double taxation.
If you’re scratching your head over all of this, you’re not alone. Taxes are a complicated matter.
That’s why it’s definitely a good idea to consult a tax professional if you’ve been working from different states. They can review your tax situation and help you understand your filing requirements to avoid any last-minute surprises.
Learn more: How Telecommuting From a Different State Could Impact Your Taxes
If you’re self-employed, you may already be familiar with or claim the home office deduction on your federal tax return.
Remind me, what’s the home office deduction? If you use a part of your home for business, the IRS may allow you to deduct certain expenses if you’re able to meet certain requirements.
You can learn more about how the deduction works in this article and IRS Publication 587: Business Use of Your Home.
But what if you’re an employee who simply wants to work from home?
Let’s say you’ve turned that small nook under the staircase into a magically cozy work space. Could you claim the deduction, too?
The IRS says you generally can’t deduct your home office from your federal taxes if you’re an employee who receives a paycheck or a W-2 exclusively from an employer – even if you’re currently working from home.
For more details, see the IRS announcement here.
You may be shelling out for business expenses like office supplies or faster internet service. Could you deduct those on your federal tax return?
For those who aren’t self-employed, the short answer is no.
The Tax Cuts and Jobs Act of 2017, a major federal tax reform law, generally disallows miscellaneous itemized deductions, including unreimbursed business expenses (at least through 2025).
Basically, this means if you’re a WFH employee and you bought yourself an extra monitor for your home office, you cannot deduct that out-of-pocket expense on your federal return. Even if you’re using it for work.
But not all is lost! While you may not be able to deduct certain business expenses on your federal return, there are some states that might allow you to deduct unreimbursed WFH expenses on your state return.
Also check in with your employer. They may be willing to help you cover some WFH expenses, too.
For those who are self-employed: You’re generally able to deduct a number of business expenses if you’re qualified to claim them (see IRS Publication 535: Business Expenses).
Again, this is why working with a tax advisor can be helpful. They can help you identify all the deductions you may be eligible for.
We know tax topics aren’t always the most fun to read, but it’s important to be aware of the potential tax issues that might crop up for WFH employees.
Keep in mind that the tax information in this article isn’t meant to be comprehensive, so be sure to contact your financial or tax advisor for more details. Hopefully, what we’ve covered here will help inform your conversation with them!
This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendations in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements of any information contained in this document and any liability therefore is expressly disclaimed.
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