The Dividing LIne-Partnership Exp or Personal

[equinecpa]

I have a couple who have had a consulting business for several years. At different times this past year they both became employees, but continued a bit of consulting on the side.

In the past I have deducted their apartment in Houston as a business expense since their home office and base was in Dallas. They used to stay in hotels, but finally leased an apartment as it was cheaper than the numerous hotel bills.

Now I am a bit perplexed. Once they both became employees the apartment would no longer be a business expense unless perhaps if a lease was signed and it was unassignable. Would this cause it still to be deductible to the business? What about earlier on, when one individual was still doing consulting work and the other an employee? Now I have mixed use - personal and business.

I have the same conundrum with regard to meals and travel expenses. How would you split this where one spouse is living there on business the other for employment?

Both the partners come home most every weekend.

Geesshh....I hate these kind of arrangements and on April 10th...

Carolyn

[Roland Slugg]

Late reply to your Q

Dear equinecpa

Sorry this reply is probably too late to help you, but FWIW ....

I would attempt to make a 3-way allocation of the apartment rent and related expenses in accordance with the time spent there on: (1) Consulting engagements, (2) their W-2 jobs, and (3) personal use. Then I'd report the portion related to (1) on Schedule C, and the portion related to (2) on F-2106. The portion related to (3) would not be deductible, of course.

The allocations would be arbitrary to some extent, but the IRS commonly accepts allocations as long as they are reasonable.

[jainen]

business purpose

>>a 3-way allocation of the apartment rent and related expenses in accordance with the time spent there<<

Time might make a reasonable allocation between business and non-business use, but when an asset is used in more than one business the proper allocation between them is by relative income.

Time is also a factor in determining whether the main purpose of the trip is business or personal. If more time is spent on non-business activities, only DIRECT business expenses are deductible. That would presumably by only the additional cost (if any) of maintaining the lodgings for the business purpose.

[Gretel]

I am not sure if they can claim any of the appartment expenses for the W-2 jobs. Do they use this for the convenience of the employer?