Tax Tuesday: Home Office Deduction

The "office-in-home" tax deduction is valuable because it converts a portion of otherwise nondeductible expenses (for example, utilities and homeowners insurance) into a deduction. The treatment of home offices for income tax purposes is one of the more controversial provisions in the tax law.

An individual is not entitled to deduct any expenses of using his/her home for business purposes unless the space is used exclusively on a regular basis as the "principal place of business." The IRS applies a 2-part test to determine if the home office is the principal place of business.

Do you spend more business-related time in your home office than anywhere else?

Are the most significant revenue-generating activities performed in your home office?

If the answer to either of these questions is no, the home office will not be considered the principal place of business, and the deduction will not be available.

Business use of the home by an employee must also be for the convenience of the employer. These rules make it very difficult for an employee to qualify for the deduction.

If these three tests are met, the deduction is limited to the gross income from the business activity. Furthermore, a deduction for home-office expenses cannot create or increase a net loss from the business. Any disallowed deduction may be carried over to future years.

Taxpayers taking a deduction for business use of their home must complete Form 8829. Some tax experts believe that taking a deduction for home-office expenses, whether clearly allowable or not, increases the likelihood of an IRS audit.

These are some thoughts to consider.

If you have a home office or are considering one, please call us at 818.242.4888. We'll be happy help you take advantage of these deductions.

FAQ Friday: What are the benefits of incorporating?

The primary advantage of incorporating is to limit your liability to the assets of the corporation only. Usually, shareholders are not liable for the debts or obligations of the corporation. So if your corporation defaults on a loan, unless you haven't personally signed for it, your personal assets won't be in jeopardy. This is not the case with a sole proprietorship or partnership. Corporations also offer many tax advantages that are not available to sole proprietors.

Some other advantages include:

• A corporation's life is unlimited and is not dependent upon its members. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
  
• Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
  
• Ownership of a corporation is easily transferable.
  
• Capital can be raised more easily through the sale of stock.
  
• A corporation possesses centralized management.

Tax Tuesday: We're more than just tax consultants!

Did you know that Robert Hall & Associates offers a wide array of services, in addition to tax services?

We offer services in the following areas: Tax, Incorporating, Financial Planning, Bookkeeping, Educational Seminars, Mortgage, Estate Planning, and Payroll.

Please feel free to contact our office at 818-242-4888 for more information.

FAQ Friday: Are there any non-tax records I should keep?

There are other records you should keep, even though they don't appear to have any use for your tax returns. Here are a few examples:

• Insurance policies, to show whether you were to be reimbursed in case you suffer a casualty or theft loss, have medical expenses, or have certain business losses.

• Records of major purchases, in case you suffer a casualty or theft loss, contribute something of value to a charity, or sell it.

• Family records, such as marriage licenses, birth certificates, adoption papers, divorce agreements, in case you need to prove change in filing status or dependency exemption claims.

• Certain records that give a history of your health and any medical procedures, in case you need to prove that a certain medical expense was necessary.

• These categories are the most universal and should cover most of your recordkeeping needs. Everyone's needs are unique, however, and there may be other records that are important to you. Skimming through our Tax Library Index might highlight other categories that apply to you.