Author Topic: Very specific tax question that I can't figure outcar/mortgage deductionTurboTax  (Read 5652 times)

mozar

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I finally got to the bottom of why my mom isn't deducting her car mileage or actuals on her taxes.

« Last Edit: May 10, 2018, 01:11:39 PM by mozar »

Wile E. Coyote

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http://www.irs.gov/publications/p463/ch04.html

Quote
Office in the home.   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business.)
Examples of deductible transportation.   The following examples show when you can deduct transportation expenses based on the location of your work and your home.
Example 1.

You regularly work in an office in the city where you live. Your employer sends you to a 1-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.

Example 2.

Your principal place of business is in your home. You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business.

Example 3.

You have no regular office, and you do not have an office in your home. In this case, the location of your first business contact inside the metropolitan area is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.

A quick note of caution that IRS publications are not law that can be relied upon, but they do generally provide a good sense of the IRS view.

mozar

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We are aware that she can deduct her car expenses if she is traveling for work between home office and another office. But what happens if she says 100% of the income is earned at the home office? Can you say that 100% of your income is earned one place, but deduct expenses from going to another place?

ltt

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But you are saying she is earning 40% of her income in someone else's home.

Here, this should help:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction




Mirwen

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I think she is greatly misunderstanding the rules.  The 100% rule as is applies to home offices is not about where you make your money, but what you do in your office.  Your office space must me 100% for working and nothing else.  In other words, you can't just stick a computer in the corner of your living room and call the whole room your home office.  It doesn't necessarily have to be a separate room, but it does need to be a defined space with an easily calculable square footage.  You must do nothing else in that space but work.

You may also deduct any car and travel expenses done to transact work.  You cannot deduct commuting costs (going from home to your workspace).  However, if she is traveling to clients that certainly sounds like it qualifies.  It is not an either or proposition.  She can deduct both.

mozar

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That's what I thought too, but on the tax form it literally says "where do you earn your income" she said 100% home office. It asks for a % of where on the tax form. And if you say 100% you can deduct 100% of your home office. If you say 50% you can only deduct 50% of the home office (thats oversimplifying tho)

johnmyster

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In my past, 100% of my small business income was for work done at many locations outside of my home office.  However, I needed a place to keep my tools, prepare paperwork and invoices, keep track of clients, repair equipment, and prepare/consult for the work to be done at remote locations.  In other words, my home office was a necessary place to conduct administrative functions of my work.

In this case, you are allowed to fully deduct the home office expenses (as long as the office is used 100% for business) as well as your transportation and job-site expenses.

http://www.irs.gov/pub/irs-pdf/i8829.pdf

« Last Edit: June 08, 2015, 02:09:08 PM by johnmyster »

mozar

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@Johnmyster: so on your taxes what did you put for where your income was earned?
I'll try to find the turbo tax link that discusses what to put for where you earned income.

johnmyster

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The question as to the location of income derrivation appears neither on my Section C nor on my form 8829.

On section C, the business address is listed as my home office.  It seems she meets the definition of "principle place of business" as the instructions for form 8829 define one.

I've never used turbo tax.  It seems they are asking you dumbed down questions that appear nowhere on the actual forms.  My tax professional is an enrolled agent and well worth the nominal fees (he appreciates that I have my documentation together when we sit down.)

mozar

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The max home office deduction the irs allows is proportional to the ratio of income that was generated by use of your home office.
https://ttlc.intuit.com/questions/2756687-what-do-i-enter-for-total-income-earned-at-job-for-home-office-section-if-self-employed-do-i-put-income-from-business

Midwest

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Home office has to be 100% business to qualify.  Home office expenses cannot exceed schedule c income. 

Source of the income is irrelevant.  You can earn 100% of your income elsewhere, but if your home office qualifies (look at the qualifications) then the home office expenses are deductible.

Look @ the 8829 and schedule c.  The answer from turbo tax makes no sense.  I suggest looking at a source other than turbo tax for answers (ie the IRS).  Follow the forms, they are fairly self explanatory.
« Last Edit: June 08, 2015, 02:57:09 PM by Midwest »

Wile E. Coyote

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As stated, don't rely on a turbotax forum for tax advice. Read the IRS links above on home office deduction.  At the link above, you will also find a link to the following Publication, which, while not authoritative, is a bit more reliable than turbotax forums.

http://www.irs.gov/publications/p587/ar02.html#en_US_2014_publink1000226313

mozar

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Anybody familiar with turbo tax? I agree it doesn't make sense.

Rural

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I used Turbotax for several years with a home office, but I had previously done the same business's taxes manually. I assumed the Turbotax question was just a poorly worded version of what the IRS a actually wants to know (since Turbotax can't change the rules...or not yet, anyway). I got similar results year over year answering the actual IRS question when Turbotax asked its questions. I can tell you I would have been very confused if I hadn't read the actual IRS instructions for their forms first.

mozar

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@Rural: so then what did you put in turbo tax? Did you say 100%, or ignored the question?

Rural

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I believe 100% because I assumed Turbotax was asking what percent I used my home office for business. But you can and should also look directly at the IRS forms in turbotax to be sure that's where the answer went. It is, or was a few years ago, one of the few real flaws in the program.


For what it's worth, I switched to TaxAct this year.

Mirwen

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Are your sure it's not asking what percentage of her *home* is used for business?  The way the deduction is calculated depends on the costs of the home, including depreciation (if owned) and then multiplied by the percentage of the home used.

So if your home expenses are $2000 per month and you use 10% for your home office, your home office deduction is $2400 for the year.  I think she's misreading the question, but I don't use Turbo Tax so I can't be sure. I prefer Tax Act because I know what it's supposed to look like on the IRS forms and that's how I check my work.

Rural

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Are your sure it's not asking what percentage of her *home* is used for business?  The way the deduction is calculated depends on the costs of the home, including depreciation (if owned) and then multiplied by the percentage of the home used.

So if your home expenses are $2000 per month and you use 10% for your home office, your home office deduction is $2400 for the year.  I think she's misreading the question, but I don't use Turbo Tax so I can't be sure. I prefer Tax Act because I know what it's supposed to look like on the IRS forms and that's how I check my work.


This is a very good point, and I don't know why it didn't occur to me. You should definitely look at that, both the language of the question and the underlying forms themselves.

mozar

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No I'm sure, and rural answered my question. I had my mom look at the irs to see if she can find where it says income derivation. She hasn't been able to find it. I think she may be coming around.

sunday

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Mozar, doesn't your mom do her appointment setting and/or book/record-keeping for the appointments inside of her office? If so, then she is using her home office substantially and regularly to qualify for the home office deduction. I've used TurboTax schedule C and don't recall it asking me to differentiate between how much of the work I do outside the home office vs inside of it, but since I set all my appointments in my home office, as well as my preparation inside the office, while conducting the work outside, I deduct the entire home office, which is a certain percentage of my house. I also take record my mileage.

If your mother wants to make it simpler, she can always just take the simplified home deduction rate, which is something like $5 a sq ft, limited to 300 sq feet? This way, there is no need to depreciate property. This is usually a lesser amount than the standard deduction method, but it might not make a big difference depending on how much she makes.

But yes, take both deductions.
« Last Edit: June 10, 2015, 11:10:09 AM by sunday »

Sibley

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Never rely 100% on any of the tax prep softwares. Yes, they're good, but this sort of debate is why you shouldn't. They ask stupid stuff, they don't ask important stuff, and they ask stuff in confusing ways.

Here's the IRS link for the actual tax form and instructions:
http://www.irs.gov/uac/Form-8829,-Expenses-for-Business-Use-of-Your-Home

You'll notice the form doesn't ask how much of your business you do in the home office, just about the square footage of the office and the house.

She can absolutely deduct both home office expenses and mileage expenses.

You don't have to depreciate the property either, that's optional. In most cases, the simplified home deduction rate will give you a lower deduction than just doing the work.

If it'll help convince her, I'm a CPA. Just don't mention that I haven't done tax work professionally in about 4 years...

mozar

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Heh. I agree and I agree. But its tough convincing mom. I've done tax work myself. Like I said I think she is on the verge of getting it.

 

Wow, a phone plan for fifteen bucks!