We are less than a month away from the April 15 tax deadline.
As of March 15, the IRS had processed nearly 71 million returns, with the average refund hovering near $3,100.
Recently, I hosted an online chat to answer readers’ tax questions. I was joined by Eric Bronnenkant, head of tax at Betterment, a digital investment advisory firm. Here are his answers to some questions we couldn’t get to, which have been edited for clarity and brevity.
My home office is in a spare bedroom. In addition to my desk, computer, printer, etc., I have some personal items in that room: The closet is where I keep my clothes, and the bookshelves hold my cookbooks. Is that a problem for the home office deduction? If so, could I solve that problem by claiming only the square footage of the room occupied by the desk and printer?
Bronnenkant: The home office deduction is not allowed currently for expenses related to being a W-2 employee. [It’s] allowed only for self-employed individuals. One key requirement for the deduction is that a portion of the home needs to be exclusively used for business purposes. Given that this seems to be mixed use, qualifying for the deduction may be challenging. See IRS Publication 587, “Business Use of Your Home.”
Singletary: The 2017 Tax Cuts and Jobs Act eliminated employee business expenses on Schedule A. This means that unless you are self-employed, an independent contractor, or working a gig job, you cannot take the home office deduction.
“Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home,” the IRS says.
If you work as an employee but also earn self-employment income, you might still be able to deduct your home office expenses.
Don’t be afraid to take the deduction if you qualify for it. For tax year 2021, the most recent year for which complete figures are available, the total value of the home office business deductions was just over $12.8 billion, according to IRS data.
To avoid a tangle with the IRS, make sure the dedicated space in your home is used exclusively for your enterprise.
On IRS.gov, the standard mileage rate for 2023 is 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the armed forces. Is the mileage deduction for medical purposes only applicable to such service members?
Bronnenkant: Unreimbursed medical expenses (including medical travel mileage, which has no military requirement) are deductible as an itemized deduction in excess of 7.5 percent of adjusted gross income (AGI). However, there are a few challenges. Claiming the deduction requires medical expenses exceeding the relatively high 7.5 percent floor and total itemized deductions that exceed the $27,700 standard deduction when filing jointly ($13,850 for single filers).
When the qualified business income, or QBI, was created a few years ago, it was not clear whether my wife and I (married filing jointly; both are federal government workers; and neither is a Realtor) could claim the deduction for one rental real estate property. Can we claim it?
Bronnenkant: Rental properties can potentially qualify for the QBI deduction. The IRS has provided guidance for taxpayers on how to analyze their situation to see whether their rental property is a qualified trade or business for QBI purposes. This is an area where having a tax professional to assist may be helpful.
Singletary: Just for more background, this type of deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income on their taxes. For more information, go to irs.gov and search for “Qualified Business Income Deduction.”
I bought a Bolt EUV last year and have a letter saying that I qualify for up to a $7,500 tax credit. My tax preparer says I will receive $0 back since my best option is to use the standard deduction on my IRS tax form. Can this be right?
Bronnenkant: Claiming the tax credit for EVs (electric vehicles) is allowed for people who take the standard deduction or itemize. The biggest challenge for many to qualify is that the tax credit is nonrefundable (can only reduce tax to zero), meeting the income limit, and having a qualified vehicle.
Singletary: As EV prices fall, interest in this credit is likely to rise.
The Inflation Reduction Act of 2022 changed the rules for this credit. To qualify, the IRS says you must buy it for your own use and use it primarily in the United States.
For more information, go to irs.gov and search for “Credits for new clean vehicles purchased in 2023 or after.”
In addition, your modified AGI may not exceed:
- $300,000 for married couples filing jointly.
- $225,000 for heads of households.
- $150,000 for all other filers.
I inherited a vacation rental home. Every year, my tax software limits my deductions to match my expenses, even though the expenses are significantly higher than my income. Why is that?
Bronnenkant: The IRS limits rental deduction to rental income for activities it deems to be not-for-profit. Here is a citation from IRS Publication 527, “Residential Rental Property (Including Rental of Vacation Homes): “If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.”
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Do I have to pay taxes on removing funds from a certificate of deposit before the maturity date?
Bronnenkant: There is no tax penalty for early withdrawal from a CD. However, the penalty that the bank charges is considered to be a deduction (no itemization required).
My mom has been in the hospital or long-term care facility since November. I’ve been paying her bills, as I have access to her accounts. However, I don’t have enough knowledge to complete her taxes. If she is not able to answer questions accurately before the deadline, what are my options?
Bronnenkant: Taking care of a loved one is challenging. Stepping in and helping with their taxes is probably a role that may not have been expected. Getting copies of prior years’ returns is helpful in identifying sources of income. IRAs, pensions, Social Security and investment income are common for retirees. If tax returns are unavailable, it may be prudent to request copies from the IRS by using Form 4506-T, “Request for Transcript of Tax Return.”
Singletary: While you look for the documents you need, you can have your mom request an extension electronically, which gives her six extra months to file her return. Go to irs.gov/extensions for details.
One caution: Though the IRS gives you more time to file your return, you’ll have to estimate what you owe and pay by the deadline.
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