Theoretic Tax Question

[Big Country]

So, a while back I posted about a couple we know getting into Visalus.. basically a MLM scheme. Promised never to talk to us abouty it after we said no... of course that hasnt happened, so, been researching the company history, the product, etc. to be ready to blast them... have some good stuff.

 

But, I know one of their arguments is the tax writeoffs, etc. for a home based business.

 

Question is, can they take credit against income from their regular job on the business expenses, or only against revenue (if there really is any) from the "business".

 

Basically I am looking at all the ways to shoot holes in any of the arguments they try to throw up about the validity of the "business opportunity".

[Ursa Majoris]

So, a while back I posted about a couple we know getting into Visalus.. basically a MLM scheme. Promised never to talk to us abouty it after we said no... of course that hasnt happened, so, been researching the company history, the product, etc. to be ready to blast them... have some good stuff.

 

But, I know one of their arguments is the tax writeoffs, etc. for a home based business.

 

Question is, can they take credit against income from their regular job on the business expenses, or only against revenue (if there really is any) from the "business".

 

Basically I am looking at all the ways to shoot holes in any of the arguments they try to throw up about the validity of the "business opportunity".

No expert but I'm pretty sure you can write off expenses for "legitimate office expenses" but there are a bunch of rules around that like the office has to be used as an office 50% of the time and so on. I don't think a side business can be offset against regular income but I could be totally wrong.

[yo mama]

I wouldn't put too much credence into what this weak-assed tax organization says, but it appears the general rule is this: you only get the deduction if your home office is used for your principal place of business. However, it appears that an exception exists *if* your "home office" space is used for storing samples/merchandise. In that case, the activities connected with the area storing samples/merchandise need not be your principal business activity. But this is a facts and circumstances test the IRS enforces aggressively, and a myriad of other rules and restrictions apply.

 

Assuming your "home business" activities are deductible, then you may be able to deduct a portion of normally non-deductible items on your income tax return, like the cost of insurance, repairs, and home maintenance. But the deduction is limited to: (1) a fraction of such expenses equal to the fraction of your home necessary to do such business; and (2) the amount of income generated solely from your home business.

 

So no: you can't use the deductions against other income, such as a union job at an auto factory. As "tax motivated" transactions go, the home business deduction is a fool's errand. High risk of audit and enforcement, upside is simply limited to offsetting what ever income you actually make. Though, if the income production is real I'm sure most folks would happily keep the after-tax cash.

 

* THIS IS NOT LEGAL ADVICE, BUT MERELY REPRESENTS WHAT SOME GUY (WHO MAY OR MAY NOT HAVE HAD SOME WINE AT DINNER) SUMMARIZED ON THE INTERNETS BASED ON HIS PASSING OBSERVATIONS OF THE LINK PROVIDED. PLEASE VERIFY YOU'RE OWN CONCLUSIONS, AS ADVICE MAY BE HARMFUL IF TAKEN INTERNALLY.

Edited February 13, 2008 by yo mama

[Azazello1313]

is this question about specifically the home office deduction (deducting a portion of your rent, utilities, etc.) or is it about self-employment business expenses more generally? it almost seems like you're asking, if their "expenses" for this MLM crap exceed their incone, can they write that "loss" off against their other taxable income? i suspect there might be some way, i don't know for sure. but of course you have to lose money in the business for that to happen, so i'm not sure that would be a great selling point.

[Grits and Shins]

I'm no tax expert ... but I know there are a couple of considerations that most fail to consider when filing a schedule C for their home based business.

 

1. You claim your home interest and taxes on schedule A. If you include a deduction on schedule C for use of your home then it is my understanding that you have to make a corresponding reduction in the amount of interest and taxes claimed on schedule A. In otherwords if you claim 10% of your house payment as a home office deduction then you must reduce the amount of interest and taxes you claim on schedule A by 10%.

 

2. When you claim a portion of your house payment as a business deduction this has a fairly significant impact on the proceeds from the sale of your home. As I recall you have to amortize the portion of the house that you have been claiming as a business deduction and calculate and claim the profit realized from the sale of that business.

 

Again I am no expert and could be off base ... but that is my understanding.

[Dr. Love]

I read somewhere that home offices are a big audit flag for the IRS. Even if you do it correctly (and my understanding is that there are a lot of rules for deducting a home office), is it worth the risk of having to go through the audit process?

[The Holy Roller]

I read somewhere that home offices are a big audit flag for the IRS. Even if you do it correctly (and my understanding is that there are a lot of rules for deducting a home office), is it worth the risk of having to go through the audit process?

 

Lying to the IRS is the same as lying to the Devil. It doesn't count as sin.

[keggerz]

I read somewhere that home offices are a big audit flag for the IRS. Even if you do it correctly (and my understanding is that there are a lot of rules for deducting a home office), is it worth the risk of having to go through the audit process?

was told the same

[Ursa Majoris]

I read somewhere that home offices are a big audit flag for the IRS. Even if you do it correctly (and my understanding is that there are a lot of rules for deducting a home office), is it worth the risk of having to go through the audit process?

TurboTax has always included a warning to be very sure of what you are doing if you try and deduct for a home office.

[MikesVikes]

Yes, having a home office is a big red flag for big brother. I'm wondering if operating a home business that shows a loss each and every year is also a big red flag. Kind of like a hobby farm where you can't deduct a loss every year for that.

[The Holy Roller]

Yes, having a home office is a big red flag for big brother. I'm wondering if operating a home business that shows a loss each and every year is also a big red flag. Kind of like a hobby farm where you can't deduct a loss every year for that.

 

 

Nope. Just don't go over 10K with the loss. My, ahem, "friend" told me.

[Puddy]

I wouldn't put too much credence into what this weak-assed tax organization says, but it appears the general rule is this: you only get the deduction if your home office is used for your principal place of business. However, it appears that an exception exists *if* your "home office" space is used for storing samples/merchandise. In that case, the activities connected with the area storing samples/merchandise need not be your principal business activity. But this is a facts and circumstances test the IRS enforces aggressively, and a myriad of other rules and restrictions apply.

 

Assuming your "home business" activities are deductible, then you may be able to deduct a portion of normally non-deductible items on your income tax return, like the cost of insurance, repairs, and home maintenance. But the deduction is limited to: (1) a fraction of such expenses equal to the fraction of your home necessary to do such business; and (2) the amount of income generated solely from your home business.

 

So no: you can't use the deductions against other income, such as a union job at an auto factory. As "tax motivated" transactions go, the home business deduction is a fool's errand. High risk of audit and enforcement, upside is simply limited to offsetting what ever income you actually make. Though, if the income production is real I'm sure most folks would happily keep the after-tax cash.

 

* THIS IS NOT LEGAL ADVICE, BUT MERELY REPRESENTS WHAT SOME GUY (WHO MAY OR MAY NOT HAVE HAD SOME WINE AT DINNER) SUMMARIZED ON THE INTERNETS BASED ON HIS PASSING OBSERVATIONS OF THE LINK PROVIDED. PLEASE VERIFY YOU'RE OWN CONCLUSIONS, AS ADVICE MAY BE HARMFUL IF TAKEN INTERNALLY.

 

[TheShiznit]

Depends on if you have schedule c income at your other job. For example, income from a job that produces a W-2 goes on the tax form on the 1040. Income that is from a small business or is 1099 I believe goes onto the Schedule C and any Schedule C business expenses only reduces Schedule C income. Also, you have a 2% floor on on W-2 income before write offs can even be counted. For example, if you gross 100K in income, the first 2K in writeoffs don't count.

 

Please confirm this with an accountant...but this is how I understand it to be.

[Ursa Majoris]

Depends on if you have schedule c income at your other job. For example, income from a job that produces a W-2 goes on the tax form on the 1040. Income that is from a small business or is 1099 I believe goes onto the Schedule C and any Schedule C business expenses only reduces Schedule C income. Also, you have a 2% floor on on W-2 income before write offs can even be counted. For example, if you gross 100K in income, the first 2K in writeoffs don't count.

 

Please confirm this with an accountant...but this is how I understand it to be.

 

Note to self: Don't bother trying the home office claim.

[TheShiznit]

 

Note to self: Don't bother trying the home office claim.

 

Don't forget, if you claim a home office, say 8% of the square footage of your house, you have to wait a couple or three years after you stop claiming said office to sell your house, or you pay gain on the portion of the house that represents your home office. Weird crap really.