The coronavirus pandemic has created a major shift to freelance and remote work. But what does that mean for your taxes?
As 2020 wore on, many businesses were forced to let employees go or close altogether in an effort to save themselves from massive losses caused by COVID-19 shutdowns. Two million people in the U.S. have taken up freelancing in the last twelve months, increasing that proportion of the workforce from 28% (where it had hovered steadily for nearly 5 years) to 36%, according to NPR.
Freelancing and Taxes
As more people head towards freelancing and independent contracting, individuals and businesses who make use of these new avenues and hire them for gigs of all sizes, the amount of 1099 filing, specifically 1099-NEC and 1099-MISC, will increase, too.
Rather than send W-2s as you would with an employee, businesses that hire independent contractors will need to prepare a 1099-NEC to report non-employee compensation that totals more than $600 in a year, which includes but is not limited to the wages you are paying the non-employee.
Self-Employed vs. Working from Home
Employees who are now working from home may feel entitled to tax deductions for the expenses they incur as a result of using their own resources (utilities, office supplies, electronics) to compensate for their loss of office or workspace.
But when it comes to taxes, there’s a difference between being self-employed and simply working from home for a larger company. If you are self-employed, running your own business from the comfort of your home, you are and have always been able to deduct home office expenses. Unfortunately, this is not the case for those who work from home and do not own their own business. Does that mean employees are on their own in purchasing the things they need for their new home office?
What about People Who Are Working from Home?
The freelance shift was one of two large waves that rocked U.S. employment. The second big shift came when nearly half of America started working remotely or from home this past spring.
People were now faced with using their own utilities and equipment (in some cases) to perform jobs they used to do in specific settings. Does that mean employees can deduct any of these expenses from their 2020 taxes?
It’s bad news for the employees –there is not a way for individuals who are working from home for a company (whether they have always worked remotely or if they were forced to because of the coronavirus) to deduct specific business purchases or expenses for their new home offices on their taxes next year.
This does present an opportunity for employers, however. If businesses reach out to ask what this new home-based workforce needs and provide them with those resources, they can deduct certain reimbursed employee expenses.
Employees may not be able to take the deduction, but if businesses are vigilant in reimbursement, everybody will come out on top in this unprecedented shift to working from home.
Let Us Help with Your Taxes This Year
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