Do You Qualify for a Home Office Deduction?

If you worked from home pre-COVID or have landed a home office job since quarantine, you may be wondering if you qualify for a home office deduction on your taxes. Tax season will be here before we know it, so it’s not too soon to be thinking about these types of deductions.

The answer is maybe. Eligibility rules can be confusing, but here are some boxes you need to check to qualify:

You’re NOT a W-2 employee

Being a W-2 employee means you work for someone else who withholds income, Medicare taxes and Social Security from your paycheck. W-2 employees are NOT eligible for home office deductions.

If you are self-employed, a contract worker/freelancer, or are a 1099 employee, you may qualify for this deduction.

You have a designated workspace

The IRS says home office expenses can be deducted when the home office space is used exclusively for conducting business. A spare bedroom, room, or a nook in your basement would count. It doesn’t have to be a completely separate room and you don’t need to construct permanent partitions, but it does need to be a “separately identifiable space.” Consider arranging furniture to mark your office boundaries, or use a panel room divider, a bookcase or even a curtain.

Your space is used regularly and exclusively for work

In order to qualify, the space must be regularly used for business, and not a shared space for your personal tasks. That rules out your kitchen table. Spaces that are used only occasionally or incidentally for business don’t count either.

It’s your principal place of business

If you meet with patients, clients or customers outside of your home, your home office could still qualify if you use the space exclusively and regularly for invoicing, scheduling and other business-related tasks.

A freestanding structure on your property could also be a deduction if you have a studio, garage or barn that you work out of. If you use part of a large room in your home as your dedicated workspace you could deduct it if you figured out the percentage of your home this space accounts for.

You can calculate your home office deduction using the regular method or the simplified method.

The regular method considers the actual expenses of your home office — such as mortgage interest, insurance, repairs, depreciation, insurance and utilities — as a percentage of your whole house. The simplified option allows the qualified taxpayer to determine actual expenses by multiplying a prescribed rate by the square footage of the office space.

Donohoo Accounting Services knows that determining your eligibility for a home office deduction is confusing. We are here to help you understand the IRS rules, how they apply to you and which calculation method to use. With more than 20 years of experience in the business, we can help you find every deduction possible to reduce your tax burden. Give us a call today at 513-528-3982 for a free consultation.

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Four Smart Tips for Building Retirement Savings

Tips for Building Retirement Savings

Saving for retirement is one of those topics many people shy away from. Do any of these reasons/excuses sound familiar? “It seems so far away … It’s overwhelming to think about … I don’t make enough money to save … I’m too young … I’m too old.”

Despite the length of your countdown to retirement, there is always time to add to your savings. After all, more is better, right? To capitalize on the time you have left before retiring, consider these four tips to enlarge your nest egg, decrease some of your worries about retirement income and perhaps even improve the quality of your life during retirement.

Set a Goal

Like any other life event that requires saving money, you need to know how much you’ll need. In other words, establish a goal. Investment advisors, friends, relatives, and even some websites will offer their advice on setting your retirement savings goal. However, only you know what kind of lifestyle you would like to maintain in retirement. And living a particular lifestyle requires an individualized budget. For example, those who wish to travel in retirement will require more savings compared to those who plan to grow backyard gardens and spend time with grandchildren. Whatever you choose, begin with the end in mind and set a realistic goal based on your individual retirement needs.

Start Saving Soon

The earlier you can begin saving, the better off you’ll be now and when it’s time to retire. The reason is that by starting early (age 18 -22), you can save a smaller amount of money each month over a longer period of time as compared to someone starting later (say, in their 40s) who has fewer years before retiring. There are plenty of examples of people beginning their retirement savings as early as age 14 while working their first job. To keep the savings hill from becoming too steep, begin as early as possible – today if possible!

Find the Money

For those wondering where to find the money to save for retirement, look around you! If you currently work for a large or mid-sized company and you’re not already participating in your employer’s 401k or other retirement savings plan, sign up right away. Many employers offer matching contributions, which is free retirement money. Additionally, consider automatically depositing 10 percent of your pay – or even better, 15 percent – each payday to a retirement savings account. Other sources for filling your retirement coffers include your annual tax refunds and money earned from a second job. Some companies now offer part-time employees ways to save for retirement including IRAs, money market accounts and stock purchase plans. So, consider a second job to build up your retirement savings.

Just Do It

With a goal, timeline and funding sources lined up, you can begin paving the way to retirement with more savings than you had at the start. Nevertheless, remember that wise counsel from experienced professionals can help uncover possible bumps in your road to retirement. If you could use some assistance mapping out your retirement savings plan, an excellent resource is an experienced accountant like those at Donohoo Accounting. Schedule your retirement savings consultation with Donohoo by calling 513-528-3982 or email us today.

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Four Tips To Save For College

Depending on grades a great score on the ACT or SAT, your future college student could have a big scholarship in his or her future. If you – and your student – haven’t been saving for college, how can you save as much as possible before the first tuition bill arrives? Whether you have a short amount of time or a decade, these four tips will give you a start on how to save for college.

Start with a goal

A college savings goal consists not only of a dollar amount but also includes a date or deadline. The most common way to compute a college savings goal is to divide the total dollar amount needed by the number of years you have to save. Another popular goal-setting method is to multiply the student’s age by $2,000. This will give you roughly the amount you should have in savings to cover 50 percent of the student’s college expenses.

Use the 10 percent rule

Could you live on 90 percent of your household income for a period of time? Probably so. Most people could, simply by looking for ways to reduce their spending. While you budget to live on 90 percent of your take-home pay, the other 10 percent goes into an educational savings account (ESA), 529 college savings account or even an interest-bearing savings account (or some combination of these). Depending on your total household income, 10 percent a year could add up to quite a bit between now and the start of college.

Save income from part-time or summer jobs

Even better than the 10 percent rule is the 100 percent rule – but only make it apply to income earned from part-time or summer jobs that your student works. A student earning $8 an hour working year-round in a part-time job can earn up to $8,000 during a single year. That’s a sizeable contribution toward college expenses! Parents can double that amount by offering to match dollar-for-dollar the amount their student saves each year.

Sell unused and unwanted items

Collectibles, antiques and even used appliances have the potential to bring in a handsome sum when sold online or in yard sales. Put your family and relatives to work scouring their attics, basements, and garages for anything of value that can be sold to add to your college savings account. The more unused or unwanted items you can sell – even for small dollar amounts – will eventually add up to help meet college expenses.

Need help developing your college savings plan? Donohoo Accounting can get you started. Contact us today to schedule your free consultation or call 513-528-3982.

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Get Your Money in Order for the New Year

This year is quickly coming to a close. Get ahead of the game and get your money in order for the new year. Don’t know where to begin? No worries! Here are some helpful tips.

Get Organized

Organize Concept Metal Letterpress Word in Drawer

You can file taxes after the new year, so now’s a good time to get all your ducks in a row. In January and early February, you’ll be receiving important documents in the mail including your W2, mortgage interest statement (1098), or student loan interest statement (1098-E.)Most companies, by law, have until January 31 to mail statements, so keep an eye out.

Designate a single location where you’ll keep these documents so they are easily accessible when you’re ready to file taxes. You can use a folder, drawer, box or other container. Put a large “taxes” label on it and use the container for tax-related documents only, not other mail or bills. But you may want to keepit near where you sort mail, so you can immediately put the documents in their home.

Then start gathering other items you’ll need for filing taxes, including charitable contributionand expense receipts. Qualified expenses depend on your situation, but could include expenses related to childcare, medical, job (mileage, supplies, relocation) and education. Donohoo Accounting Services can help you navigate the complicated tax structure. In addition to income tax preparation, we handle payroll tax prep, tax levies and liens, back taxes, end tax penalties, estate tax return preparationand more.

Make Year-End Charitable Contributions

Many charities do a final fundraising push at the end of the year, so you’ll probably receive solicitations asking for support. If you want to help non-profit organizations while also possibly reducing your taxable income, make your donations by December 31. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the yearwill count in that year – even if the credit card bill isn’t paid until later. You’ll want to make sure the charity is eligible. Many times, the charity will note its “501c3” status, which is IRS speak for tax-exempt. You can also use the IRS Tax Exempt Organization Search.

Take an Assessment of Where You Stand Financially

Magnifying glass showing assessment word on grey background

Now’s a good time to take a hard look at your income, debt, expenses, retirement funds, college and emergency savings. Are you on track to meet financial goals? If yes – great! If no – why are you falling short? To properly move forward into the next year, you need a realistic picture of where you are now. Put pen to paper and write down all the numbers. It helps to see everything in black and white.

Make a Financial New Year’s Resolution (Or Better Yet – Create APlan You’ll Stick With All Year)

Once you know where you stand currently, you can create a plan for the upcoming year. Perhaps you want an emergency savings fund. You never know when the furnace is going to go out, someone in your family has a medical issue or there’s a company layoff. Experts say you should have enough emergency savings to cover three to sixth months of expenses. Maybe you have all your financial bases covered but want to take an exotic vacation? Set the goal, create a plan and start saving for that overseas beach trip. Although it’s a busy holiday season, set aside time to get your money in order for the new year. Once you’re ready to file taxes, turn to Donohoo Accounting Services, locally owned and operated by Cincinnati native, Duane Donohoo.