Remote work has been steadily increasing in popularity, and the COVID-19 pandemic has only accelerated this trend. As a result, small businesses are facing new tax challenges. One significant challenge is the question of nexus, which refers to the connection between a business and a state that allows the state to impose tax obligations on the business. With remote work, employees may be working from different states, potentially creating nexus in those states.
Additionally, small businesses may face challenges with employment taxes for remote workers, as employers are required to withhold state and local taxes from employee paychecks based on where the employee works. Small businesses may also need to consider home office deductions, remote work benefits deductions, and reciprocity agreements.
To navigate these tax challenges, small businesses can work with experienced tax professionals, implement policies and procedures, and potentially use tax software. By taking these steps, small businesses can successfully navigate the tax challenges of remote work.