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IRS Suspends Processing of New ERC Claims

By: Tax Hotline
Fall 2023 (Vol. 41, No. 3)

The IRS is continuing to warn businesses about aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC). It has suspended the processing of ERC claims until at least year end because of a spike in the number of fraudulent claims.

The IRS has issued a series of red flags businesses should bear in mind. Warning signs include unsolicited calls claiming a quick and easy process, your business qualifies for ERC and large upfront fees based on a percentage of the refund claim. Eligible employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. But there are very specific eligibility requirements; careful review is required to determine eligibility. The IRS recommends businesses work with a trusted tax professional.

Q: Help!! Almost two years ago, I moved to a new state and have been paying state taxes here. But my old state just sent me a bill saying I owe them taxes as if I were still living there. How did this happen?

A: Your prior state doesn’t know you moved. Each state has its own rules regarding domicile. If you established domicile in the new state but didn’t successfully terminate domicile in the old one, you could have both states claiming you owe them taxes. Additionally, if you die without clearly establishing domicile in just one state, both the old and new states may claim that your estate owes income taxes and any state estate tax due. Here are some steps to take to avoid confusion at tax time:

  • Terminate your lease in writing or sell or lease your home in your prior state. Even if you didn’t have an official lease, terminate your residency in writing and keep the paperwork.

  • Buy or lease a home in the new state. If you are a guest or roommate, get that agreement in writing.

  • Don’t just forward your mail. Change your mailing address on bank and investment accounts, insurance policies and other important documents.

  • Change your address with the IRS. Complete Form 8822 for personal returns and 8822-B for a business.

  • Get a driver’s license or state identification card in the new state and register any vehicles.

  • Register to vote in your new state.

Keep in mind, if you earned any income in your prior state in the year you moved, you will need to file a state for that portion of the year.

Q: Do I qualify to take a home office deduction?

A: The Tax Cuts and Jobs Act suspended home office deductions from 2018 through 2025 for employees, even if you’re currently working from home because your employer doesn’t provide office space. But self-employed taxpayers still qualify for home office deductions if part of their home is used “ regularly and exclusively” as the principal place of business. If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:

  • You physically meet with patients, clients, or customers on your premises, or

  • You use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business. The space must be used exclusively for business. For example, if your home office is also a guest bedroom, you can’t deduct the entire space as a home office expense. But if you use the desk area of the room exclusively for business, you can deduct that portion of the room, as long as you otherwise qualify. Deductible home office expenses may include:

  • Direct expenses, such as the cost of painting and carpeting a room used exclusively for business,

  • A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs and insurance, and

  • Depreciation.

Another option is the simplified method: You can deduct $5 for each square foot of home office space, up to $1,500. The cap can make the simplified method less valuable for larger home office spaces.

Q: I took the home office deduction in the past using the $5 per square foot method. Can I change this year and use the actual expense method instead?

A: Yes. You are not locked in, you can switch between the two and use whichever one benefits you most.