home office Deduction

[TAX]

New client

Heating & AC person.. Will Start business in August 07

Main concern: Home office deductions:

(1) What is better Sch "C" or Scorp
I think S corp

(2) Can he deduct use of Garage as a home office
Reg, exclusive use. Does not park car inside

(3) Also uses one room for business

Thanks!

[Corduroy Frog]

Couple of Notes

Tax, a couple of notes on your question(s).

I'll start with the garage. I think the expenses attributable to the garage should not be reported as an "office-in-home." It doesn't fit the mold or the nature of the beast. However, you may have to allocate items such as electricity, property taxes, interest, etc. and report them as single line-items.

The C-corp versus S-corp? Seems like that discussion has nothing to do with office-in-home. I could be wrong.

Also, the form for reporting office-in-home (8827) has no connection whatsoever to a corporation - only to a proprietorship. I think your client may be ill-advised to charge rent, but could possibly justify a reimbursement from the corporation equivalent to what might could be otherwise deductible if this were a proprietorship.

[RLymanC]

Office in Home

As long as the seperate structure is used in connection with the trade or business it becomes a qualified home office, as such. you can deduct daily commuting costs between home and another work location in the same trade or business.

You can also deduct a portion of the utility, insurance, repairs (100% if made on the seperate structure.)

[Gene V]

Contrary to Mr. Frog, I think using the garage would be appropriate for a Heating and AC business, where else would you store and work on the Heating and AC pipes. If that is where you work, then take the deduction.

[newbie]

Re-visit this thread with several different opinions.

http://www.thetaxbook.com/forums/showthread.php?t=2506&highlight=office+home

[Corduroy Frog]

Garage

I don't suppose I was clear on the garage, Gene V.

I suggested that he deduct allocable expenses on the garage, but not report it as office-in-home. The garage resembles more of a direct cost, and he has another office literally in his home.

[Gene V]

I don't suppose I was clear on the garage, Gene V.

I suggested that he deduct allocable expenses on the garage, but not report it as office-in-home. The garage resembles more of a direct cost, and he has another office literally in his home.

Agree.....

[Greenbriar]

Schedule C or S Corp

I'm interested in members' comments on the original post: which is better - sked C or S corp. I like S corp for a variety of reasons: liability protection, especially since client is working out of his house, but I always advise them to discuss with an attorney; schedule C is being scruitinized more by IRS than ever before; 1120S easier to deduct and sustain legitimate expenses than sked C.; requires owner to take salary and pay his taxes. My sked C filers always complain about self employment tax. Also, from a marketing viewpoint, corp. gives the business some more credibility. Comments? thanks.

[oceanlovin'ea]

Schedule C benefit

One schedule C benefit is that if the owner employs his spouse or children in his business, he has some tax savings resulting from that. If his chldren are under 18, he is not required to withhold social security and medicare taxes from their wages. If they earn under the standard deduction for the year and have no other income, they would not be required to file a tax return but the wages would be a deduction for the business owner.

If he employed his spouse, he would have to withhold taxes from her wages, but he could also set up a medical reimbursement plan for her and reimburse her for all of her family's out of pocket medical expenses. With this you have to be careful, because if you have other employees you would have to offer the medical reimbursement plan to them also if they qualify.

But the wages of children and spouses and the medical reimbursement can be a large tax savings on a Schedule C.

This would only be one consideration in making a choice.

Linda F

[Bird Legs]

C or S Corp.

Would not matter when coming to liability protection. If the client is performing the work himself, then he will be personally liable if something goes wrong and a lawsuit is filed.
The suit will be filed against the corp. & the individidual performing the work. As for office in home expense, only a sole proprietor can deduct this. A C or S Corp. can reimb. the owner for the business portion of the home office exp. however, the person cannot take a deduction for this.
There was a long discussion on this about a year and a half ago on this board.

[Bees Knees]

Would not matter when coming to liability protection. If the client is performing the work himself, then he will be personally liable if something goes wrong and a lawsuit is filed.
The suit will be filed against the corp. & the individidual performing the work.

I agree.

Liability protection is not a reason to incorporate a single owner business. Despite what attorneys may claim, the person suing you will include the individual owner in the lawsuit, as well as the corporation. Even if the case is frivolous, incorporating will not stop someone from naming you personally in a lawsuit.

The best liability protection is liability insurance.

[Kram BergGold]

Home office issues

If the garage is not attached to the house, i.e. it is a separate structure, you better make sure your client understands that unless he discontinues using it two years or more before the sale of the house, he will be paying capital gains tax on that portion of the proceeds as well as on the depreciation claimed.

[Davc]

If the garage is not attached to the house, i.e. it is a separate structure, you better make sure your client understands that unless he discontinues using it two years or more before the sale of the house, he will be paying capital gains tax on that portion of the proceeds as well as on the depreciation claimed.

That should be discontinues using it for business and begins using it for personal purposes.

[winnie]

S corp and home office

Look to pg 19-11 of TTB on S corp and shareholder's use of home. Is your client going to be an employee of the S corp?

As far as the choice between sole proprietorship or S corp, I often have clients with a new and probably small business start as a sole proprietorship. Their taxes remain simple, don't have to have payroll and if the business really doesn't work in 18 months, then it is easy to wrap up. If, after a few years and they are making money, then we can convert to an S corp, usually at 1/1 to keep everything simple. Taxpayer does a tax free contribution of all business assets to the corp and keeps going. Now taxpayer can acheive some tax savings with payroll, plus dividends. Of course, he has to have reasonable comp. He can afford the complications of separate tax returns and payroll and is now making enough money that he can save enough in taxes to offset the complications.

With a SINGLE MEMBER LLC, taxpayer can be a sole proprietor with liabiltiy limits and simple tax return, then follow the steps above by choosing to be taxed as an S corp at some point in time.

[erchess]

I may be way out of date here

but my understanding is that a home office that is attached to the home has to be the primary place where you do business. In other words if taxpayer or clients brought units to the home office where he repaired them, then yes the home office would be the primary work location and the expenses would be deductible. The bare fact that he spent some time every working day in the home office doing tasks without doing which he would not be able, practically or legally, to continue in business I believe would be irrelevant. In the HVAC business one's primary business location is the buildings where climate control systems are installed.

Have I missed a change since in the law?