You’ve started a new job. It’s an exciting and daunting new chapter in your life. But with it can come questions and trepidation, especially on the subject of taxes. How do you start your new job on the right foot, tax-wise?
At Hacker Accounting, we know the right steps to take to put your finances and taxes on sure footing. Here are some of our best tax tips for new employees.
Don’t Mix Your Accounts
One of the biggest mistakes people make when putting their taxes together is mixing their personal expenses in with their business expenses. Few things will throw up an auditing red flag faster than deducting a personal expense as a business expense. The best way to avoid doing this is to establish good habits early on in your employment.
Take stock of the items and expenses that tie into your work and track those. Take care not to mix them with personal expenses. Track your mileage, but make sure it’s just work mileage. If you’re going to use a computer as part of your job, don’t think you can write off your home computer as a business expense. You have to be able to prove that anything you write off as a business expense is ONLY used for business purposes. If it’s something that you use regularly for your own benefit outside of work, don’t deduct it.
The 2% Floor
In order for you to deduct workplace expenses, your total itemized deductions must exceed your standard deduction. You have to meet what’s called “the 2% floor”. This means that the total of the expenses you deduct has to be greater than 2% of your adjusted gross income, and you can only deduct expenses over that amount.
You can’t deduct an expense that your employer can reimburse you for. And you also have to be sure that the expense was incurred during your tax year. A final requirement (and a very important one): The expense has to be “ordinary and necessary”. If they challenge you, you have to prove that the expense was a necessary part of your business.
Related: Best Ways to Avoid Being Audited
Looking for more tax tips? Give Hacker Accounting a call at 602-375-5251.