Summer allows for many activities outside of your normal routines. You can work less, head for the beach or mountains and possibly consider renting your home. Or you may be a small business owner that requires more workforce during the summer, so you hire temporary employees. Both of these out out of norm activities may have income tax implications.
An often asked question is – If I rent my home out for two weeks each year. Do I have to show this rental income on my federal tax return?
If you rent your principal residence to others for fewer than 15 days per year, any rental income you derive is not considered taxable income. However, if you rent your principal residence for fewer than 15 days per year, or if you do not rent your home at all, the only home-related expenses you may deduct are the following:
Interest on loan(s) secured by the residence (i.e., mortgage interest), subject to certain limitations
- Property taxes
- Casualty losses
Maybe the home you’re renting is a second home or vacation residence. If you rent a second residence for fewer than 15 days per year, that home will be considered a second home for tax purposes. As was the case with your principal residence, any rental income you receive will be exempt from federal income tax. Also, you may not deduct expenses related to the renting of the property. However, you will be allowed to deduct casualty losses, mortgage interest, and property taxes you pay on the home during the year, subject to the normal limitations on mortgage interest deductions on primary and second homes.
If you rent a second residence for 15 days or more per year, and your personal use of the property exceeds the greater of 14 days per year or 10 percent of the days rented, your residence will be considered a vacation home for tax purposes. All rental income you receive will be reportable. Along with the usual deductions for casualty losses, property taxes, and mortgage interest, you may be able to deduct expenses for insurance, repairs, utilities, and depreciation (under certain conditions).
Different tax rules will apply if your property is considered to be strictly rental property.
As a business owner, what should I know about using temporary workers? If you’re planning to ramp up your temporary staff this summer, here are a few things to know.
Generally, temporary work is any work that is not intended to be permanent or long term. Temporary work can be full- or part-time. Use of temporary workers (sometimes referred to as temps) may provide you with some flexibility to handle employee absences due to illness, vacation, or maternity leave. They may also help you handle special projects, busy times, or seasonal work.
Temporary workers can be hired directly or through a temporary employment agency. Temporary workers you hire directly, even if part-time, are generally treated the same as full-time workers and may be entitled to employee benefits through you. For example, a worker who completes 1,000 hours of service in a year may be eligible to participate in your retirement plan.
On the other hand, a temporary employee hired through a temp agency works for the agency, not for you. The employment agency is generally responsible for the temporary employee’s benefits, if any. The hourly wage rate you pay to the agency may be higher as a result.
The temp agency can save you time and effort by finding and screening potential employees so that you don’t have to. The agency may have a pool of workers available at any time and at a moment’s notice. The screening, in particular, may be worth the extra cost in the current tight job market.
However, you may need to break in or train a temporary employee each time you get one from the employment agency. To minimize this, you may request that the employment agency send a temporary employee who has already worked for you before.
Sometimes a temporary employee may become a permanent employee. If an employee was hired through a temporary employment agency, depending on your contract with the employment agency, you may need to pay a fee to the agency if you permanently hire the temporary employee.
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