Fresh Start Tax LLC “A” Rated by Better Business Bureau A Professional Tax Firm practicing Tax Law since 1982.
We are former IRS Agents and Tax Managers. Over 60 years of working at the IRS.
As a former IRS Agent, I am asked constantly about the office in the home deductions. Be careful when taking these tax deductions. This is a audit rich area IRS looks at when pulling tax returns of audits.
Follow these IRS tips. If you are getting audited, call our firm today. Also, if you are getting audited never allow the IRS to go to your home for the tax audit.
Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction. Here are six things the IRS wants you to know about the Home Office deduction
1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:as your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business, or
in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.
4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.
6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.
Chances of an IRS Tax Audit:
1. Individual Income Tax Returns: The overall audit rate of only 1.1% for all individual returns
2. If you report income on a Schedule C: ( rethink schedule C )
Individual Income Tax Returns: your IRS tax audit rate is anywhere from 2.9-4.7% vs. the overall audit rate of only 1.1% for all individual returns. Thus a Schedule C will increase your audit risk 3-4 times.
3. The Audit Rate for partnerships and S Corporations are at .4% ( less than 1 %). The message here is that you should strongly consider conducting your present Schedule C activity in either an S corporation or a partnership. Transitioning to an S or partnership form of doing business is very easy and is almost always tax free.
4. If your total income is over $1M: you have a 1 in 12 chance of being audited now, vs. a 1 in 15 chance in 2009. This is huge. The issues that seem to come up in these exams are
For more information see IRS Publication 587, Business Use of Your Home, available at http://www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
