News. Trends. Perspectives. December 2020

2020 is (finally) coming to an end, and that means it’s time to start thinking about tax preparation. Businesses and individual taxpayers alike may be dealing with some unusual tax situations when they file this year, and it’s important to be prepared for whatever your unique circumstances might bring.

In this month’s newsletter, I’ll be looking at some interesting tax situations for newly-remote workers (hint: you might have a surprise tax bill if you live out of state from your employer’s location), what to do if your child files a tax return before you can claim them as a dependent, and what you need to do before year-end to get ready for next tax season.

In this edition:

• News for Now: How state laws impact remote workers’ taxes
• Tax Trends: What to do if your dependent child files their own tax return
• Paul’s Perspective: Year-end tax tasks to prep for your 2020 filing

1. News for Now — Financial news that matters to you

Could you be taxed twice as an out-of-state remote worker?

A large number of corporate employees went fully remote for the first time this year in the wake of COVID-19. If you used to commute to your office from out of state (or if you moved out of state and continued working remotely for the same employer), you may encounter a surprise on your 2020 tax bill.

I fully expect taxpayers to grow frustrated when they discover some states may tax them, even if they didn’t physically work there. For instance, New York State has already determined that out-of-state telecommuters working for NY-based employers will still be considered as working in New York for state tax purposes unless the employer “has established a bona fide employer office at your telecommuting location.”

You might try to argue that you’re a nonresident of that state or didn’t work in the state, which could lead to a residency audit and potentially land you in tax court. In the end, the government would be likely to win any such lawsuit. That’s why I’m advising my clients to keep records of what states they’re working in and for how many days.

Get more insights in this article in the Journal of Accountancy.

P.S. - Employ remote workers who live out of state? Read this.

2. Tax Trends — Helping you stay on track with your taxes year-round

My dependent child filed their own tax return before I could claim them. What do I do?

Picture this: Your college student came back home to live with you during the pandemic. You’ve been supporting them financially and plan to claim them as a dependent on your taxes this year, but they have their own part-time job and are eager for their refund. 

Unbeknownst to you, they file their own tax return under their own Social Security number, and when you go to e-file your return, you receive a notice from the IRS that it’s been rejected.

What happened? The IRS noticed your dependent child’s Social Security number appeared on more than one tax return.

If this happens, an amended return can be filed when claiming a dependent was just a mistake, such as with parents and their children. Unfortunately, an amended return needs to be filed for the child and any refund received needs to be repaid. Both these events take time. All the while, the parent either can’t file their return or has to file their return without the child and amend their own return.

If you’re dealing with a case of fraud where someone has stolen your or your child’s Social Security number to fraudulently claim a dependent, notify the IRS and the FTC at IdentityTheft.gov. You can learn more about this topic and get my insights on The Balance.

3. Paul’s Perspective — My take on hot financial topics

Get ready for tax season with these year-end financial tips.

Because of the unusual circumstances of this year — the July 15 filing extension, the CARES Act, payroll tax deferral, etc. — many businesses are wondering how their 2020 taxes might be impacted. 

As you close out your business books for the year and begin planning for the upcoming tax season, here are some year-end tax prep tips to help you. 

1. Plan your billing cycle carefully to ensure you’re getting paid for December work when it’s most convenient for your taxes.
2. Make as many tax-deductible purchases as possible before December 31.
3. Understand how COVID-related tax provisions might affect your  business.
4. Max out your retirement savings contributions for the year.
5. Prepare a list of questions to review with your CPA so they can help you maximize your savings and deductions.

Read more on the Miller & Company blog.

Looking for guidance with your year-end tax planning and return preparation? Contact Miller and Company today to set up your free consultation.