In this guest post, Samantha Clark from ThePayStubs highlights common tax mistakes remote workers often make — and how to avoid them. She shares expert insights to help remote professionals navigate tax season with confidence, ensuring they maximize deductions and stay compliant with IRS regulations.
Remote work has emerged as a popular style for many professionals. It offers many benefits, like working from anywhere, time flexibility, access to the international job market, and more. However, nothing comes without cons. The number one drawback is the tax laws. It is a headache for most remote workers, whether full-time, part-time, or freelance. Insufficient technical knowledge leads to mistakes, adds up the stress of penalties, and leads to repeating the procedure. Let’s learn more about how to avoid tax mistakes and what the common tax mistakes are.
1. Waiting Until the Last Minute to File Taxes
The most important thing — and foremost for remote workers — is to work on their tax, expenses, and income estimations beforehand. Never wait for tomorrow.
Mistake: Procrastination leads to last-minute rushing and errors in filing for taxes. It adds to your stress; deductions are overlooked, and sometimes missing documents take longer to find.
How to Avoid It: Be prepared before the deadline arrives and ensure you have all the necessary documents. You can explore accounting software to help you navigate the process.
2. Failing to Pay Quarterly Estimated Taxes
The rule is don’t miss a deadline; it applies not only to the clients of a freelancer but also when it comes to paying taxes.
Mistake: Usually, freelancers or self-employed remote workers tend to skip the quarterly payment of estimated taxes. This mistake leads to penalties, causing not only financial strain but a poor financial record too.
How to Avoid It: You are eligible for quarterly tax payments as per the IRS standards if you owe more than $1,000 in taxes at the year-end. To estimate taxes and make timely payments, you can use IRS Form 1040-ES. Also, don’t forget to activate reminders.
3. Misclassifying Employment Status
Tax obligations are affected by the IRS category of workers. It means that a remote worker should know which category they fall into, whether independent contractors or employees. As a remote worker, you should know your employment status to avoid tax filing blunders.
Mistake: Sometimes remote workers file taxes incorrectly and become subject to unexpected liabilities because of wrong assumptions. For example, the company assigns working status as an independent contractor, but you thought you were an employee.
How to Avoid It: Firstly, to calculate your taxes appropriately, you should ask your clients or employer to clearly state your role. Next, there are two types of forms. You are self-employed if you get the 1099 form, suggesting your taxes are your responsibility. Whereas receiving the W-2 form indicates that you are considered an employee, hence your taxes are already deducted.
4. Overlooking Home Office Deductions
Work from home has evolved both professionally and legally over time. Working from home no longer means that you do not have to bear any commercial costs. Many remote workers don’t realize that they can claim home office deductions.
Mistake: Most remote workers are not well aware of how to claim home office expenses as deductions.
How to Avoid It: An important tip is to maintain records. Every expense, like office supplies, utilities, and rent, should be on the record. However, these expenses should be related to a specific area of your home that is designated solely for professional work. To estimate your deductions, IRS Form 8829 is used.
5. Ignoring Self-Employment Tax
Self-employed workers are responsible for paying both the employer and employee portions of Medicare and Social Security taxes, known as the self-employment tax.
Mistake: Usually, financial planning done by most freelancers does not include self-employment tax, which accounts for 15.3% of the total earnings.
How to Avoid It: Use IRS Schedule SE to analyze the amount of self-assessment tax that can be waived while filing a tax return. Self-employment tax has to be added when estimating state and federal income tax.
6. Neglecting State Tax Obligations
Tax obligations can get complicated when a remote worker is living or working in a different country.
Mistake: It is a common assumption made by remote workers that they are liable to pay for the taxes in the employer’s country. Hence, they end up being charged for non-compliance.
How to Avoid It: Consult a tax professional to navigate international tax rules. Research the tax laws in both countries to understand your obligations.
7. Failing to Track Business Expenses
Usually, business expenses incurred working from home are overlooked by remote workers. But they can help reduce your income tax obligation.
Mistake: Business expenses should be closely tracked and should be up to date.
How to Avoid It: Be aware of the costs that can be claimed as an operational expense. They include internet costs, software subscriptions, and office equipment or maintenance. For seamless record-keeping of eligible expenses, try integrating accounting software or using expense-tracking applications.
8. Not Keeping Proper Tax Records
To avoid attracting penalties in audit season, ensure your record-keeping is up-to-date.
Mistake: Not maintaining accurate records can cause remote workers to incorrect tax filing and audit errors.
How to Avoid It: Either use a secure folder or cloud-based system to keep every copy of important tax documents. Your tax returns, receipts, and invoices should be maintained for at least 3 years.
9. Overlooking Health Insurance Deductions
Another important element that helps lower taxable income is the health insurance deductions. Some remote workers purchase health insurance independently but fail to claim the self-employed health insurance deduction.
Mistake: Health insurance purchased by remote workers is not claimed as an expense while calculating income.
How to Avoid It: Health insurance for your dependents and spouse can also be claimed as your expense, and it is eligible for a deduction if the payments are documented and the requirements of the IRS are fulfilled.
10. Forgetting to Deduct Retirement Contributions
To save in terms of taxable income, try making contributions to tax-advantaged accounts and saving for retirement.
Mistake: It is very essential to contribute to retirement accounts, which helps lower your taxable income and increase your retirement fund.
How to Avoid It: Self-employed remote workers should research the advantages to never miss out on such opportunities. Contributors are given tax benefits by the IRS.
Stay Informed and Avoid Costly Tax Mistakes as a Remote Worker
Make your remote working seamless and enjoy the benefits it offers by becoming aware of the common tax mistakes made by remote workers and how to avoid them. Legal implications are challenging for many individuals, particularly remote workers. Awareness of the dos and don’ts of filing tax returns will help you navigate the tax season without any penalties or late payments. Moreover, it will help you track your expenses, which is essential for any business.
Author Bio
Samantha Clark is a Warrington College of Business graduate and she works for the professional accounting firm, ThePayStubs. She handles all client relations with top-tier partners and found her passion in writing articles on various finance and business-related topics.
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