As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But you should be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be an expensive mistake.

The question of whether a worker is an independent contractor or an employee for federal income and employment tax purposes is a complex one. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax. Often, a business must also provide the worker with the fringe benefits that it makes available to other employees. And there may be state tax obligations as well.

These obligations don’t apply if a worker is an independent contractor. In that case, the business simply sends the contractor a Form 1099-MISC for the year showing the amount paid (if the amount is $600 or more).

No uniform definition

Who is an “employee?” Unfortunately, there’s no uniform definition of the term.

The IRS and courts have generally ruled that individuals are employees if the organization they work for has the right to control and direct them in the jobs they’re performing. Otherwise, the individuals are generally independent contractors. But other factors are also taken into account.

Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530. In general, this protection applies only if an employer:

• Filed all federal returns consistent with its treatment of a worker as a contractor,
• Treated all similarly situated workers as contractors, and
• Had a “reasonable basis” for not treating the worker as an employee. For example, a “reasonable basis” exists if a significant segment of the employer’s industry traditionally treats similar workers as contractors.

Note: Section 530 doesn’t apply to certain types of technical services workers. And some categories of individuals are subject to special rules because of their occupations or identities.

Asking for a determination

Under certain circumstances, you may want to ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee. However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors.

Businesses should consult with us before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and inadvertently trigger an employment tax audit.

It may be better to properly treat a worker as an independent contractor so that the relationship complies with the tax rules.

Be aware that workers who want an official determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities.

If a worker files Form SS-8, the IRS will send a letter to the business. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return the form to the IRS, which will render a classification decision.

Contact us if you receive such a letter or if you’d like to discuss how these complex rules apply to your business. We can help ensure that none of your workers are misclassified.

Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are some answers to questions you may have about EIPs.

Who’s eligible to get an EIP?

Eligible taxpayers who filed their 2018 or 2019 returns and chose direct deposit of their refunds automatically receive an Economic Impact Payment. You must be a U.S. citizen or U.S. resident alien and you can’t be claimed as a dependent on someone else’s tax return. In general, you must also have a valid Social Security number and have adjusted gross income (AGI) under a certain threshold.

The IRS also says that automatic payments will go to people receiving Social Security retirement or disability benefits and Railroad Retirement benefits.

How much are the payments?

EIPs can be up to $1,200 for individuals, or $2,400 for married couples, plus $500 for each qualifying child.

How much income must I have to receive a payment?

You don’t need to have any income to receive a payment. But for higher income people, the payments phase out. The EIP is reduced by 5% of the amount that your AGI exceeds $75,000 ($112,500 for heads of household or $150,000 for married joint filers), until it’s $0.

The payment for eligible individuals with no qualifying children is reduced to $0 once AGI reaches:

• $198,000 for married joint filers,
• $136,500 for heads of household, and
• $99,000 for all others

Each of these threshold amounts increases by $10,000 for each additional qualifying child. For example, because families with one qualifying child receive an additional $500 Payment, their $1,700 Payment ($2,900 for married joint filers) is reduced to $0 once adjusted gross income reaches:

• $208,000 for married joint filers,
• $146,500 for heads of household,
• $109,000 for all others

How will I know if money has been deposited into my bank account?

The IRS stated that it will send letters to EIP recipients about the payment within 15 days after they’re made. A letter will be sent to a recipient’s last known address and will provide information on how the payment was made and how to report any failure to receive it.

Is there a way to check on the status of a payment?

The IRS has introduced a new “Get My Payment” web-based tool that will: show taxpayers either their EIP amount and the scheduled delivery date by direct deposit or paper check, or that a payment hasn’t been scheduled. It also allows taxpayers who didn’t use direct deposit on their last-filed return to provide bank account information. In order to use the tool, you must enter information such as your Social Security number and birthdate. You can access it here: https://bit.ly/2ykLSwa

I tried the tool and I got the message “payment status not available.” Why?

Many people report that they’re getting this message. The IRS states there are many reasons why you may see this. For example, you’re not eligible for a payment or you’re required to file a tax return and haven’t filed yet. In some cases, people are eligible but are still getting this message. Hopefully, the IRS will have it running seamlessly soon.

In the midst of the coronavirus (COVID-19) pandemic, Americans are focusing on their health and financial well-being. To help with the impact facing many people, the government has provided a range of relief. Here are some new announcements made by the IRS.

More deadlines extended

As you probably know, the IRS postponed the due dates for certain federal income tax payments — but not all of them. New guidance now expands on the filing and payment relief for individuals, estates, corporations and others.

Under IRS Notice 2020-23, nearly all tax payments and filings that would otherwise be due between April 1 and July 15, 2020, are now postponed to July 15, 2020. Most importantly, this would include any fiscal year tax returns due between those dates and any estimated tax payments due between those dates, such as the June 15 estimated tax payment deadline for individual taxpayers.

Economic Impact Payments for nonfilers

You have also likely heard about the cash payments the federal government is making to individuals under certain income thresholds. The Coronavirus Aid, Relief, and Economic Security (CARES) Act will provide an eligible individual with a cash payment equal to the sum of: $1,200 ($2,400 for eligible married couples filing jointly) plus $500 for each qualifying child. Eligibility is based on adjusted gross income (AGI).

On its Twitter account, the IRS announced that it deposited the first Economic Impact Payments into taxpayers’ bank accounts on April 11. “We know many people are anxious to get their payments; we’ll continue issuing them as fast as we can,” the tax agency added.

The IRS has announced additional details about these payments:

• “Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically,” the IRS stated. Automatic payments will also go out to those people receiving Social Security retirement, survivors or disability benefits and Railroad Retirement benefits.
• There’s a new online tool on the IRS website for people who didn’t file a 2018 or 2019 federal tax return because they didn’t have enough income or otherwise weren’t required to file. These people can provide the IRS with basic information (Social Security number, name, address and dependents) so they can receive their payments. You can access the tool here: https://bit.ly/2JXBOvM

This only describes new details in a couple of the COVID-19 assistance provisions. Members of Congress are discussing another relief package so additional help may be on the way. We’ll keep you updated. Contact us if you have tax or financial questions during this challenging time.

As we all try to keep ourselves, our loved ones, and our communities safe from the coronavirus (COVID-19) pandemic, you may be wondering about some of the recent tax changes that were part of a tax law passed on March 27.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a variety of relief, notably the “economic impact payments” that will be made to people under a certain income threshold. But the law also makes some changes to retirement plan rules and provides a new tax break for some people who contribute to charity.

Waiver of 10% early distribution penalty

IRAs and employer sponsored retirement plans are established to be long-term retirement planning accounts. As such, the IRS imposes a penalty tax of an additional 10% if funds are distributed before reaching age 59½. (However, there are some exceptions to this rule.)

Under the CARES Act, the additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with COVID-19 or is economically harmed by it. Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread-out.

Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules

Depending on when you were born, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts — including traditional IRAs, SEP accounts and 401(k)s — when you reach age 70½ or 72. These distributions also are subject to federal and state income taxes. (However, you don’t need to take RMDs from Roth IRAs.)

Under the CARES Act, RMDs that otherwise would have to be made in 2020 from defined contribution plans and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70½ in 2019.

New charitable deduction tax breaks

The CARES Act makes significant liberalizations to the rules governing charitable deductions including:

• Individuals can claim a $300 “above-the-line” deduction for cash contributions made, generally, to public charities in 2020. This rule means that taxpayers claiming the standard deduction and not itemizing deductions can claim a limited charitable deduction.
• The limit on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020. Instead, an individual’s eligible contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 is required.

Far beyond

The CARES Act goes far beyond what is described here. The new law contains many different types of tax and financial relief meant to help individuals and businesses cope with the fallout.

On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Employee retention credit

The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

Employer eligibility. The credit is available to employers with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.

Wage eligibility. For employers with an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether an employee is furloughed. For employers with more than 100 full-time employees last year, only the wages of furloughed employees or those with reduced hours as a result of closure or reduced gross receipts are eligible for the credit.

No credit is available with respect to an employee for whom the employer claims a Work Opportunity Tax Credit.

The term “wages” includes health benefits and is capped at the first $10,000 paid by an employer to an eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.

Payroll and self-employment tax payment delay

Employers must withhold Social Security taxes from wages paid to employees. Self-employed individuals are subject to self-employment tax.

The CARES Act allows eligible taxpayers to defer paying the employer portion of Social Security taxes through December 31, 2020. Instead, employers can pay 50% of the amounts by December 31, 2021 and the remaining 50% by December 31, 2022.

Self-employed people receive similar relief under the law.

Temporary repeal of taxable income limit for NOLs

Currently, the net operating loss (NOL) deduction is equal to the lesser of 1) the aggregate of the NOL carryovers and NOL carrybacks, or 2) 80% of taxable income computed without regard to the deduction allowed. In other words, NOLs are generally subject to a taxable-income limit and can’t fully offset income.

The CARES Act temporarily removes the taxable income limit to allow an NOL to fully offset income. The new law also modifies the rules related to NOL carrybacks.

Interest expense deduction temporarily increased

The Tax Cuts and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income.

The CARES Act temporarily and retroactively increases the limit on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. There are special rules for partnerships.

Bonus depreciation for qualified improvement property

The TCJA amended the tax code to allow 100% additional first-year bonus depreciation deductions for certain qualified property. The TCJA eliminated definitions for 1) qualified leasehold improvement property, 2) qualified restaurant property, and 3) qualified retail improvement property. It replaced them with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that period failed to be reflected in the language of the TCJA. Therefore, under the TCJA, QIP falls into the 39-year recovery period for nonresidential rental property, making it ineligible for 100% bonus depreciation.

The CARES Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP eligible for 100% bonus depreciation. The provision is effective for property placed in service after December 31, 2017.

Careful planning required

This article only explains some of the relief available to businesses. Additional relief is provided to individuals. Be aware that other rules and limits may apply to the tax breaks described here. Contact us if you have questions about your situation.

Taxpayers now have more time to file their tax returns and pay any tax owed because of the coronavirus (COVID-19) pandemic. The Treasury Department and IRS announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

Taxpayers can also defer making federal income tax payments, which are due on April 15, 2020, until July 15, 2020, without penalties and interest, regardless of the amount they owe. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. They can also defer their initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.

No forms to file

Taxpayers don’t need to file any additional forms to qualify for the automatic federal tax filing and payment relief to July 15. However, individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004. Contact us if you need assistance filing these forms.

If you expect a refund

Of course, not everybody will owe the IRS when they file their 2019 tax returns. If you’re due a refund, you should file as soon as possible. The IRS has stated that despite the COVID-19 outbreak, most tax refunds are still being issued within 21 days.

New law passes, another on the way

On March 18, 2020, President Trump signed the “Families First Coronavirus Response Act,” which provides a wide variety of relief related to COVID-19. It includes free testing, waivers and modifications of Federal nutrition programs, employment-related protections and benefits, health programs and insurance coverage requirements, and related employer tax credits and tax exemptions.

If you’re an employee, you may be eligible for paid sick leave for COVID-19 related reasons. Here are the specifics, according to the IRS:

• An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or whose child care provider is unavailable, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay.
• An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.

As of this writing, Congress was working on passing another bill that would provide additional relief, including checks that would be sent to Americans under certain income thresholds. We will keep you updated about any developments. In the meantime, please contact us with any questions or concerns about your tax or financial situation.

If you have a life insurance policy, you probably want to make sure that the life insurance benefits your family will receive after your death won’t be included in your estate. That way, the benefits won’t be subject to the federal estate tax.

Under the estate tax rules, life insurance will be included in your taxable estate if either:

• Your estate is the beneficiary of the insurance proceeds, or
• You possessed certain economic ownership rights (called “incidents of ownership”) in the policy at your death (or within three years of your death).

The first situation is easy to avoid. You can just make sure your estate isn’t designated as beneficiary of the policy.

The second situation is more complicated. It’s clear that if you’re the owner of the policy, the proceeds will be included in your estate regardless of the beneficiary. However, simply having someone else possess legal title to the policy won’t prevent this result if you keep so-called “incidents of ownership” in the policy. If held by you, the rights that will cause the proceeds to be taxed in your estate include:

• The right to change beneficiaries,
• The right to assign the policy (or revoke an assignment),
• The right to borrow against the policy’s cash surrender value,
• The right to pledge the policy as security for a loan, and
• The right to surrender or cancel the policy.

Keep in mind that merely having any of the above powers will cause the proceeds to be taxed in your estate even if you never exercise the power.

Buy-sell agreements

If life insurance is obtained to fund a buy-sell agreement for a business interest under a “cross-purchase” arrangement, it won’t be taxed in your estate (unless the estate is named as beneficiary). For example, say Andrew and Bob are partners who agree that the partnership interest of the first of them to die will be bought by the surviving partner. To fund these obligations, Andrew buys a life insurance policy on Bob’s life. Andrew pays all the premiums, retains all incidents of ownership, and names himself as beneficiary. Bob does the same regarding Andrew. When the first partner dies, the insurance proceeds aren’t taxed in the first partner’s estate.

Life insurance trusts

An irrevocable life insurance trust (ILIT) is an effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured’s estate. Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums. Alternatively, the trust buys the insurance with funds contributed by the insured person. So long as the trust agreement gives the insured person none of the ownership rights described above, the proceeds won’t be included in his or her estate.

The three-year rule

If you’re considering setting up a life insurance trust with a policy you own now or you just want to assign away your ownership rights in a policy, contact us to help you make these moves. Unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate. For policies in which you never held incidents of ownership, the three-year rule doesn’t apply. Don’t hesitate to contact us with any questions about your situation.

If you made large gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2019 gift tax return. And in some cases, even if it’s not required to file one, it may be beneficial to do so anyway.

Who must file?

Generally, you must file a gift tax return for 2019 if, during the tax year, you made gifts:

• That exceeded the $15,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $30,000 annual exclusion,
• That exceeded the $155,000 annual exclusion for gifts to a noncitizen spouse,
• To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($75,000) into 2019,
• Of future interests — such as remainder interests in a trust — regardless of the amount, or
• Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($11.4 million for 2019). As you can see, some transfers require a return even if you don’t owe tax.

Who might want to file?

No gift tax return is required if your gifts for 2019 consisted solely of gifts that are tax-free because they qualify as:

• Annual exclusion gifts,
• Present interest gifts to a U.S. citizen spouse,
• Educational or medical expenses paid directly to a school or health care provider, or
• Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork or interests in a family-owned business, you should consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

April 15 deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2019 returns, it’s April 15, 2020 — or October 15, 2020, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2019 gift tax return, contact us.

© 2020

LINKEDIN/FACEBOOK IMAGE POST (STAND-ALONE POST TO USE WITHOUT A LINK):

If you made large gifts to your children, grandchildren or others in 2019, it’s important to determine whether you’re required to file a gift tax return by April 15 (Oct. 15 if you file for an extension). Generally, you’ll need to file one if you made 2019 gifts that exceeded the $15,000-per-recipient gift tax annual exclusion (unless to your U.S. citizen spouse) and in certain other situations. But sometimes it’s desirable to file a gift tax return even if you aren’t required to. If you’re not sure whether you must (or should) file a 2019 gift tax return, contact us.

If you own a home, the interest you pay on your home mortgage may provide a tax break. However, many people believe that any interest paid on their home mortgage loans and home equity loans is deductible. Unfortunately, that’s not true.

First, keep in mind that you must itemize deductions in order to take advantage of the mortgage interest deduction.

Deduction and limits for “acquisition debt”

A personal interest deduction generally isn’t allowed, but one kind of interest that is deductible is interest on mortgage “acquisition debt.” This means debt that’s: 1) secured by your principal home and/or a second home, and 2) incurred in acquiring, constructing or substantially improving the home. You can deduct interest on acquisition debt on up to two qualified residences: your primary home and one vacation home or similar property.

The deduction for acquisition debt comes with a stipulation. From 2018 through 2025, you can’t deduct the interest for acquisition debt greater than $750,000 ($375,000 for married filing separately taxpayers). So if you buy a $2 million house with a $1.5 million mortgage, only the interest you pay on the first $750,000 in debt is deductible. The rest is nondeductible personal interest.

Higher limit before 2018 and after 2025

Beginning in 2026, you’ll be able to deduct the interest for acquisition debt up to $1 million ($500,000 for married filing separately). This was the limit that applied before 2018.

The higher $1 million limit applies to acquisition debt incurred before Dec. 15, 2017, and to debt arising from the refinancing of pre-Dec. 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing doesn’t exceed the original debt amount. Thus, taxpayers can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt, and that refinanced debt amount won’t be subject to the $750,000 limitation.

The limit on home mortgage debt for which interest is deductible includes both your primary residence and your second home, combined. Some taxpayers believe they can deduct the interest on $750,000 for each mortgage. But if you have a $700,000 mortgage on your primary home and a $500,000 mortgage on your vacation place, the interest on $450,000 of the total debt will be nondeductible personal interest.

“Home equity loan” interest

“Home equity debt,” as specially defined for purposes of the mortgage interest deduction, means debt that: is secured by the taxpayer’s home, and isn’t “acquisition indebtedness” (meaning it wasn’t incurred to acquire, construct or substantially improve the home). From 2018 through 2025, there’s no deduction for home equity debt interest. Note that interest may be deductible on a “home equity loan,” or a “home equity line of credit,” if that loan fits the tax law’s definition of “acquisition debt” because the proceeds are used to substantially improve or construct the home.

Home equity interest after 2025

Beginning with 2026, home equity debt up to certain limits will be deductible (as it was before 2018). The interest on a home equity loan will generally be deductible regardless of how you use the loan proceeds.

Thus, taxpayers considering taking out a home equity loan— one that’s not incurred to acquire, construct or substantially improve the home — should be aware that interest on the loan won’t be deductible. Further, taxpayers with outstanding home equity debt (again, meaning debt that’s not incurred to acquire, construct or substantially improve the home) will currently lose the interest deduction for interest on that debt.

Contact us with questions or if you would like more information about the mortgage interest deduction.

If you’re self-employed and work out of an office in your home, you may be entitled to home office deductions. However, you must satisfy strict rules.

If you qualify, you can deduct the “direct expenses” of the home office. This includes the costs of painting or repairing the home office and depreciation deductions for furniture and fixtures used there. You can also deduct the “indirect” expenses of maintaining the office. This includes the allocable share of utility costs, depreciation and insurance for your home, as well as the allocable share of mortgage interest, real estate taxes and casualty losses.

In addition, if your home office is your “principal place of business,” the costs of traveling between your home office and other work locations are deductible transportation expenses, rather than nondeductible commuting costs. And, generally, you can deduct the cost (reduced by the percentage of non-business use) of computers and related equipment that you use in your home office, in the year that they’re placed into service.

Deduction tests

You can deduct your expenses if you meet any of these three tests:

Principal place of business. You’re entitled to deductions if you use your home office, exclusively and regularly, as your principal place of business. Your home office is your principal place of business if it satisfies one of two tests. You satisfy the “management or administrative activities test” if you use your home office for administrative or management activities of your business, and you meet certain other requirements. You meet the “relative importance test” if your home office is the most important place where you conduct business, compared with all the other locations where you conduct that business.

Meeting place. You’re entitled to home office deductions if you use your home office, exclusively and regularly, to meet or deal with patients, clients, or customers. The patients, clients or customers must physically come to the office.

Separate structure. You’re entitled to home office deductions for a home office, used exclusively and regularly for business, that’s located in a separate unattached structure on the same property as your home. For example, this could be in an unattached garage, artist’s studio or workshop.

You may also be able to deduct the expenses of certain storage space for storing inventory or product samples. If you’re in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use to store inventory or product samples.

Deduction limitations

The amount of your home office deductions is subject to limitations based on the income attributable to your use of the office, your residence-based deductions that aren’t dependent on use of your home for business (such as mortgage interest and real estate taxes), and your business deductions that aren’t attributable to your use of the home office. But any home office expenses that can’t be deducted because of these limitations can be carried over and deducted in later years.

Selling the home

Be aware that if you sell — at a profit — a home that contains (or contained) a home office, there may be tax implications. We can explain them to you.

Pin down the best tax treatment

Proper planning can be the key to claiming the maximum deduction for your home office expenses. Contact us if you’d like to discuss your situation.