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IRS Withholding Calculator Helps Retirees, Self-Employed, and Others with Multiple Income Sources

The IRS Withholding Estimator webpage helps taxpayers with employee wages make sure that the correct amount of tax is being withheld from their paychecks. Ordinarily, tax withholding only takes into account the tax implications of income from a particular job. If you have multiple jobs or receive other taxable income, the amount withheld might be too low. Insufficient withholding throughout the year can mean an unexpectedly large spring tax bill, perhaps even one that includes IRS penalties.

Getting your withholding right to avoid such surprises can be particularly tricky if you receive non-employee income. The Withholding Estimator tool is therefore especially useful if you:

Receive Social Security retirement benefits but also work part-time or have a pension.
Earn any self-employment income, which includes “side hustles” and “gig economy” income, such as driving for Uber or Lyft.
Have unearned income such as stock dividends, interest, alimony, or distributions from a traditional (not Roth) IRA.
Use scholarship or grant funds for expenses other than tuition and school fees (such as incidental living expenses).
In order to get the most accurate results from the Tax Withholding Estimator, you will need to know your income amounts from these sources, as well as the wages and tax withholding shown on your paychecks. The tool will also ask for your filing status and number of dependents.

If you find that not enough tax has been withheld from your 2019 paychecks, it is not too late to take action. Here are three ways to lower your spring tax bill and reduce or eliminate any IRS penalties:

Fill out a new W-4 Form (Employee’s Withholding Allowance Certificate) and submit it to your employer, requesting that an additional amount be withheld from your paychecks.
Complete Form W-4V (Voluntary Withholding Request) to request that tax be withheld from your Social Security checks; submit the form to the Social Security Administration.
Make a fourth-quarter Estimated Tax Payment for 2019. The due date for such a payment is January 15, 2020.

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Health Insurance Tax Breaks for the Self-Employed

If you’re self-employed and paying for medical, dental or long-term care insurance, the IRS wants to remind you about a special tax deduction for some insurance premiums paid for you, your spouse, and your dependents.

Starting in tax year 2011, this deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040, line 29.

You must be one of the following to qualify:

  • A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
  • A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
  • A shareholder owning more than 2 percent of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

The insurance plan must be established under your business.

  • For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
  • For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
  • For more-than-2-percent shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
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Is Your Home Office a Tax Deduction?

Many individuals have home offices, but are unclear on whether or not they can claim these home offices as tax deductions. The IRS explicitly states that home offices can be deducted from your taxes. However, they are also very clear that this home office can only be used for work-related purposes. It must also be used regularly for work-related purposes (meaning it cannot be a spare room that you happen to do some work in now and then).

Is your home office suitable for an IRS deduction?

If so, then it is worth exploring how to claim the home office on your taxes. Self-employed individuals can do this when they file their tax return. If you are an employee of a business it is necessary in case of an audit to be able to prove that your home office is for the sole benefit of your employer.

Necessary Information When Claiming Home Office Deduction

There are a few necessary steps when claiming your home office. These steps include:

   - Providing the area of the room that is used exclusively for business.
   - Providing the total area of your home.
   - Calculating the percentage of your home which your home office takes up.

You will also need to have on hand your mortgage payment, household expenses, and other similar expenses.

Use Caution When Claiming a Home Office Deduction

You should absolutely claim any eligible home office deductions. Doing so can significantly lower your tax liabilities. Be sure to keep all receipts and other relevant information on hand just in case.

Call us with any questions about claiming your home office as a tax deduction. We’ll be happy to take a look at your situation and see what we can do save you more money.

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