The job field for recent college graduates looks much different today than it did even 10 years ago. You might have big dreams about working from home because so many positions have become remote. There are plenty of perks to working remotely, but people are often surprised by how it affects their taxes.
This guide explains how work from home culture could change your taxes and how to make a smooth transition once you receive an offer of employment.
1. You Could Earn New Deductions
The most significant benefit of work from home culture is the addition of deductions. Every time you have to buy printer paper for work projects, upgrade your laptop to do your job, or even buy gas to drive for interviews, they can all reduce your total tax bill for the year.
Most things you buy for your job will count as a deduction, including portions of your rent, mortgage, and electricity bill. Calculate how much of your rent or mortgage covers the square footage of your home office and how many work hours each week require electricity. Those calculations will also reduce your tax bill, which can save a significant amount of money for remote employees and contractors.
2. You Might Pay Double Taxation
Tax laws can get complicated and cost people more money than they actually owe. Remote workers in New York pay two income taxes on whatever money they make, both in and out of the state. If you work for companies based in New York and a different state, you might pay double the income taxes.
Although the Supreme Court created a Common Clause tariff in the 2015 case of Maryland v. Wynne, accidents happen during tax filing season. If you've found that you paid double income taxes, you'll have to take the case to court. You'll most likely win your case because of the Supreme Court's ruling, so carefully review your tax filing each year.
Learning about important laws like this is one example of how work from home culture could change your taxes and how you handle them.
3. You Should Save Receipts
Although some accountants take their clients' word when adding deductions, most will require proof of each expense with receipts. Save receipts for everything from gas purchases to office supplies. You'll have to keep a spreadsheet record with the totals and dates of purchase, along with physical and digital copies of each receipt.
4. You'll Pay Self-Employment Tax
If your job qualifies as a contractor position, you'll pay the self-employment tax. This tax covers the portion of Social Security and Medicare taxes that your employer would cover if you worked under a W-2. Instead, you'll have to pay the 15.3% rate in addition to your state and federal income taxes.
It takes a significant chunk out of your paycheck, so it's wise to meet with a financial advisor or accountant to determine how much to set aside for this tax each year.
5. You Should Pay Quarterly Estimated Taxes
Employees who get a W-2 don't have to pay quarterly taxes because they receive each paycheck after their employer pays the applicable taxes with their income. Work from home culture gets much easier if you pay quarterly estimates.
Each quarterly payment will depend on your total income. Based on your meeting with an accountant or advisor, you'll pay state and federal estimated taxes four times each year. When the April annual tax filing deadline rolls around, you won't have a big bill because you already kept up with what you owed throughout the past year.
Expect a Change in Your Taxes
While studying for finals and applying for your first post-college job, make sure you learn how work from home culture could change your taxes.
It's better to prepare yourself for things like the self-employment tax, quarterly payments, and any situations where you might overpay and get your money back through a court ruling. You'll enjoy the freedom of remote work more if you don't have to worry about your new tax situation.
