That’s great information. Thank you sir. I appreciate you offering that up
cpa fees - all business expenses are deductible, since tax preparation is personal/business, it’s best if your accountant bifurcates the bill so that it’s clearer. fees depend on the individual, usually very reasonable but perhaps higher than others but well worth the difference. cpas are trained in law, finance, economics, a lot of value. I’m biassed since I’m a cpa myself. I do have some cpas as clients, they got out of the business, it’s complicated, etc.
home office was a hot button for many years, perhaps you can claim the “Simplified Option for Home Office Deduction”, you should be ok with that. doing an LLC, GREAT IDEA, make it a single member so you don’t have to file a partnership return.
car expense, etc. the number one advice any competent cpa will give you is the following. Imagine that business/economics is a dog and taxes are the tail, don’t let the tail wag the dog. don’t make decisions based on taxes, make them on your business needs. SUV/truck with gvwr over 6000 have incentives, some trucks and SUVs are on car chassis and don’t get the benefits. basically it’s better depreciation deduction but again, remember the dog!
single member LLC (one owner LLC) are “disregarded entities”, they are “disregarded” for income tax purposes but not for all other purposes. best to title your car/truck in your name or the insurance company will stick it to you.
mileage logs are highly recommended. some vehicles are exempt from that requirement because they are special purpose vehicles buy yours is likely not going to be exempt. for instance, if your second car is a trash truck, you don’t need to keep a mileage log (they’re not very practical for running errands).
it’ s good to do a consultation with a cpa, BEFORE you set things up and have him/her prepare your income taxes for a few years. if after that you say, hey, I can do that myself, go for it.
cpa typically gets paid by the hour but in this day/age, noone wants to do that, everyone wants a fixed fee. if you’re budget concious, ask your prospective CPA what his rate is and ask if you can have a couple of hours, he/she will most likely work with you.
just like home inspectors, CPAs are licensed in VA, you can look up someone’s license to make sure they are in good standing. get references from trusted sources.
thank you guys so much
It is my understanding that if you claim…say 1/8 of your home as office deduction and all that goes with it, you must be taxed on 1/8 of the sale of your own house when you sell it as well as other deductions e.g. gas, elec. property taxes, etc.
It was never really worth it for me to take the small home office deduction and keep all those records. JMHO…YMMV
I use the mileage deduction (57.5 cents per mile).
Larry, i fully agree with your conclusion that the home office deduction isn’t worth pursuing, you already get to deduct interest and real estate taxes but the simplified deduction might be worth pursuing. With regard to gain on sale of residence, note the following:
Excludable gain on sale of principal residence. IRC §121 lets taxpayers exclude up to $500,000 in gain on the sale of a principal residence.If a portion of the home was used for business purposes, the excludable gain does not have to allocated between the business and personal use of the home. Inother words, the taxpayer’s exclusion is not affected by the business use. However,the gain from the sale or other disposition that is eligible for the exclusion mustfirst be reduced by the amount of any depreciation attributable to periods after May 6, 1997. In addition,if the business-use portion was separate from the residence portion—for instance,if a home office was in a detached garage—the exclusion applies on to the gain allocableto the residential portion.
Oh, Thanks, Chris.
I’m past that now and had a great CPA that I trusted. Maybe I misunderstood that or maybe it changed since I inspected and he didn’t tell me specifically that portion?.
Correct, it’s called recapture & applies to the “gain” on a deprecated asset sale or disposition. Recapture also applies to the “gain” on a vehicle or equipment sale that has already been deprecated; in part or full.
No recapture on this part, just the depreciation of the asset (home).
…but you can only deduct the percentage of these equal to the percentage size of the home off to the total home size. (Newbies- lots of rules apply to what is considered a “home office”).
You cannot deduct interest & property tax if using this method. This method is all encompassing with regard to home office deductions. I agree the simplified method will work best for most home office tax do-it-yourselfers.
To clarify, if you claim the simplified deduction you can claim mortgage interest and real estate taxes as itemized deductions (schedule A deductions). I don’t agree with some of the assertions you made but whatever.
It used to be that way, for context congress learned that the IRS was setting up a separate division to track the cost basis of people’s homes and they stepped in to tame the bureaucracy. They changed the rules circa 1997. I wish congress would do that more often.
Thanks, Chris! I thought I remembered it correctly.