Tax FAQ: Write Offs, Gas Expenses, Contractors, and More

As the year comes to a close and people are making last-minute moves, here are even more tax FAQs.

How much do you get back from tax write-offs?

How much you get back from tax write-offs depends on how much you spent and your tax rate. One thing to note is that you usually don’t get the full amount of the write-off back.

For example, say you have a $1,000 deduction and a 30% tax rate. The deduction reduces your income by $1,000. That’s $1,000 you’re not paying 30% on. So you get back $300.

Is gas a business expense?

Gas is a business expense if you need to drive in your business. Note: Commuting between your house and your business is usually not a business expense.

Most people don’t deduct gas directly even though that’s an option. They usually claim the standard mileage deduction.

Is independent contractor the same as self-employed?

Independent contractor usually means the same thing as self-employed. The taxes are also the same.

Independent contractor often more specifically refers to someone who provides contract services to a business. Self-employed can cover a broader range of work such as owning your own retail store.

Is rental income subject to self-employment tax?

Rental income can be subject to self-employment tax depending on how much work you do.

If you actively manage your properties and provide services to your tenants, your rental income may be business income subject to self-employment tax. If you sit back and let a property manager do all the work, your rental income may be passive income that’s not subject to self-employment taxes.

Is retirement income taxed in Pennsylvania?

Pennsylvania exempts most retirement income from taxes. This includes:

• Social Security
• 401(K), IRA, and other retirement account withdrawals
• Pensions once you’re age 60 or older (if you get a pension earlier, that may be taxable)

Note: If you receive a pension from a Pennsylvania employer and move to a new state, you may have to pay taxes on your pension in that state. On the other hand, you can also move to Pennsylvania to escape taxes if you currently live in a state that taxes your retirement accounts.

How does paying independent contractors in cash work?

The IRS doesn’t care how you pay your independent contractors. You can use cash, checks, direct deposit, cryptocurrency, or anything else you and the contractor agree to.

There are some steps you should take when paying with cash, though.

• Ask the contractor to give you a receipt. This avoids disputes over whether you paid. You’ll also need proof that you paid the contractor to claim a deduction for the payments.
• If you’re a business, issue the independent contractor a Form 1099-NEC at the end of the year. In order to do so, you should request a Form W-9 from the contractor when you sign the original contract and before work begins.
• If you never got a Form W-9, get one ASAP. You can face large fines if you don’t file your 1099s by January 31st. If your contractor refuses to provide one, contact a tax accountant.

What’s the difference between a tax deduction vs a write-off?

Tax deduction and tax write-off mean the same thing. Tax deduction is the official term.

Write-off is a more general term that means removing an asset from your books. In this case, the asset you’re removing is the cash you paid for the thing you’re deducting.

The term tax write-off is commonly used as a synonym for a tax deduction.

Can you claim tax deductions for a new home?

There’s no tax deduction FOR buying a new home, but there are deductions you may now qualify for. These include:

• Mortgage interest
• State and Local Tax Deduction (for property taxes)
• Home office deduction (if you’re self-employed)

There is no longer a moving expense deduction except for certain military members. Home repairs and renovations are also generally not tax deductible.

Note: If you live in a state with state income taxes, check your state’s rules as they may be different from the IRS.

What does this is not a payoff amount on an IRS transcript mean?

If you owe money to the IRS and look up your balance on your tax transcript, you may notice that it says this is not a payoff amount. There are three reasons for this.

• Your tax transcript may show your balance as of the last day the IRS changed it rather than the current day.
• Interest and penalties keep adding on until you pay in full (just like bank loans and credit cards).
• Recent payments may not be showing yet.

If you want to request a payoff amount from the IRS, the best thing to do is call. In many cases, you can get your payoff amount via the automated phone system instead of waiting on hold.

If you pay without confirming the payoff amount and pay too much, you’ll need to request a refund. If you don’t pay enough, your balance will go down, but penalties and interest will continue to apply to the remaining balance.

Can you claim unreimbursed employee business expenses?

No, there’s currently no way to claim unreimbursed expenses you paid as an employee.

The only thing you can do is convince your employer to reimburse you. If your employer reimburses you for qualified expenses and documents things properly, the reimbursement won’t be included in your taxable income.

Can you deduct self-employment tax?

Yes, you can normally deduct one-half of the self-employment taxes that you paid. The reason that it’s one-half is that self-employment taxes have an employer’s half and an employee’s half.

The employer’s half is effectively a business expense. However, instead of you deducting it with your other business expenses, your tax filing software will automatically calculate this deduction separately.

Is DoorDash busy on Easter?

DoorDash usually won’t be busy on Easter. Most people plan ahead to cook at home or go out to eat.

On the other hand, a lot of Dashers may take Easter off. So even if overall orders are down, you may still see a lot of orders available.