No one wants to pay more taxes than they have to.
Unfortunately, the tax landscape isn't always so clear for remote workers, who draw income from multiple sources and work from multiple locations. To avoid potential penalties and limit your tax obligations, consider the following tax strategies for remote workers.
Hoard your receipts: Since they can be frequently on the move, remote workers often struggle to maintain receipts and other important documents. Because they are a key portion of the income and taxation puzzle, it's critical that you create a systematic approach to gathering, storing and organizing transactional records. Without proper proof of deductible expenditures, you will miss opportunities to claim expenses.
Set aside workspace: According to Forbes, while an estimated 26 million Americans work from home offices, less than 3.5 million include them in their tax deductions. Many choose to forgo home-office deductions, because they believe it will trigger an audit. This is generally a myth, as long as you properly file Form 8829, Expenses for Business Use of Your Home.
Make sure you have all the right paperwork: If you are operating a small business from a home office, you are likely to need business and occupational licenses, proper tax registrations and specific permits from local, state and federal governments to legally operate.
Pay your taxes quarterly: The IRS requires independent contractors and other self-employed workers to pay estimated federal taxes on income and FICA every quarter. If you wait to pay the whole lump sum at the end of the year, you are likely to incur unnecessary penalties.
Be aware of foreign tax obligations: If you work from various locations abroad during the year, you may be liable for taxation in those countries. Since every country has its own tax code, it’s a good idea to speak to a tax professional for guidance. You may also be liable for taxes in specific states where you worked, depending on the amount of income generated in each location.
Hire an expert: As your small business grows, the tax landscape can become even more complex and convoluted. When this occurs, it pays to hire a knowledgeable bookkeeper or accountant. Just make sure to carefully vet a potential candidate before you make a hire to ensure that he or she is familiar with your industry.
To the chagrin of many, antiquated tax codes have not yet caught up to the reality of a remote and globalized workforce. To avoid unexpected issues and unnecessary costs, make sure you understand your obligations and potential deductions using online research or the assistance of a tax professional.