Author Topic: Is doing a home office and vehicle expense necessary?  (Read 2064 times)

CopperTex

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Is doing a home office and vehicle expense necessary?
« on: December 24, 2016, 04:19:14 PM »
I understand that all deductions need to be reported, but is the home office deduction and mileage deduction necessary? I want to put the the max from my husbands business into his individual 401(k). The business brought in 15k but after those two deductions I can only contribute 11.5k into his 401(k) :/

iris lily

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Re: Is doing a home office and vehicle expense necessary?
« Reply #1 on: December 24, 2016, 04:43:40 PM »
DH never tried to take a "home me office" deduction because it wasnt worth it. By the time we assigned costs to the small room he used as his s office, there was very little to deduct. And besides, we didnt want to use the room exclusively for his business which is one of the requirements.

He did track mileage, though, because  that was pretty easy and it added up.

terran

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Re: Is doing a home office and vehicle expense necessary?
« Reply #2 on: December 24, 2016, 09:07:09 PM »
I don't think you're going to get in trouble for not claiming an expense deduction you are eligible for, but I'm not sure getting to put more in a 401k is worth it. The advantage of putting money in a 401k is that you get a tax deduction and don't pay tax on that money now, but you do pay tax on that money when it comes out of the 401k. If you properly claim an expense deduction, you won't pay tax on that amount now or ever. Also, you will have to pay self employment tax on income that would allow you to contribute to a 401k, but you will not pay it on business expense deductions, so that's another 15.3% you won't have to pay.

I suppose you could make the argument that by putting the money in the 401k you'll avoid tax on dividends and capital gains, but I suspect tax efficient investing in a taxable brokerage account would come out ahead of paying self employment and income taxes at your marginal rate on income you would otherwise not have to pay taxes on at all because it could be claimed as an eligible business expense.

NoNonsenseLandlord

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Re: Is doing a home office and vehicle expense necessary?
« Reply #3 on: December 25, 2016, 05:41:01 AM »
The IRA says you can deduct up to $1,500 without a lot of problems.  Mileage at .54 per miles adds up quickly.  Trips to the bank, but supplies, going to meetings, meeting with customers, etc.

A fool and their money are soon parted.  It looks like you will be broke soon with skipping deductions.  Hire a tax accountant as soon as you can.

CopperTex

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Re: Is doing a home office and vehicle expense necessary?
« Reply #4 on: December 25, 2016, 08:19:20 AM »
If you properly claim an expense deduction, you won't pay tax on that amount now or ever

This makes a lot of sense, thank you. I asked the original question because I use our 401(k)s to lower our MAGI for Obamacare subsidies, but not sure that will be available going forward.

terran

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Re: Is doing a home office and vehicle expense necessary?
« Reply #5 on: December 25, 2016, 08:24:37 AM »
The expense deductions lower your MAGI too (they're on schedule C, so that income never makes it to your 1040 at all). In fact, you'd have to try it out, but I think the expense deductions might actually lower it more since you don't have to account for the employee portion of self employment tax (7.65%).

CopperTex

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Re: Is doing a home office and vehicle expense necessary?
« Reply #6 on: December 25, 2016, 08:41:05 PM »
The expense deductions lower your MAGI too (they're on schedule C, so that income never makes it to your 1040 at all). In fact, you'd have to try it out, but I think the expense deductions might actually lower it more since you don't have to account for the employee portion of self employment tax (7.65%).

That is exactly what happened when I took out the deduction in TurboTax. Thanks for the great advice, terran! Looks like I'll be taking the deduction.

SeattleCPA

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Re: Is doing a home office and vehicle expense necessary?
« Reply #7 on: December 26, 2016, 08:16:21 AM »
I don't think you're going to get in trouble for not claiming an expense deduction you are eligible for, but I'm not sure getting to put more in a 401k is worth it. The advantage of putting money in a 401k is that you get a tax deduction and don't pay tax on that money now, but you do pay tax on that money when it comes out of the 401k. If you properly claim an expense deduction, you won't pay tax on that amount now or ever. Also, you will have to pay self employment tax on income that would allow you to contribute to a 401k, but you will not pay it on business expense deductions, so that's another 15.3% you won't have to pay.

I suppose you could make the argument that by putting the money in the 401k you'll avoid tax on dividends and capital gains, but I suspect tax efficient investing in a taxable brokerage account would come out ahead of paying self employment and income taxes at your marginal rate on income you would otherwise not have to pay taxes on at all because it could be claimed as an eligible business expense.

Totally, totally agree with above comments.