Home based business helped physician spouse

[The White Coat Investor]

Hawkeye225 wrote:

The White Coat Investor wrote:

A $1000 deduction, for someone with a 50% marginal tax rate, means $500 off their taxes.

The OP may or may not be REALLY starting a business. In reality he/she is helping his/her spouse with their business. The amount of income is likely the same for the couple no matter who makes it, but if the wrong person makes it the tax bill is higher. Now if he/she decides to do this for someone else’s practice, then sure, there’s additional income for the couple.

I’m not saying NOBODY has any room in their house that they can dedicate to doing nothing with but Facebooking and direct mail, but when most people really think about it, they’ll realize that’s a job that can be done from the recliner in the family room. The whole “home office” is just a tax scheme.

The reality is that most people use that space for both their business and whatever else they want, then lie to the IRS in order to save on taxes. I figure if you’re going to lie to the IRS, might as well lie big and I can think of a lot more profitable lies than a home office deduction.

But hey, run the numbers yourself and if you figure you can get yourself a $4K deduction, I’m all for it. Just remember the rule- regular and exclusive use of the space for the business. And make sure you’re not paying $8K in SS taxes to get a $1K deduction which is what I suspect may be going on here.

And why are you assuming the OP is a she? Sexist!

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Why would one be paying $8000 in SS taxes in this scenario?

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Let's say that instead of paying yourself $480K, you decide to pay yourself $400K and your formerly stay at home spouse $80K. On that extra $80K, you would only pay income tax and Medicare tax because you've already maxed out your SS tax (which maxes out about $127K this year). But your spouse hasn't maxed out their SS tax. So in this self-employed scenario, your spouse would pay 12.4% of that $80K in SS tax. 12.4% *$80K = $9,920. Half of that is deductible though, so the actual number would be a little lower, but how much lower depends on the marginal tax rate.

[Hawkeye225]

The White Coat Investor wrote:

Hawkeye225 wrote:

The White Coat Investor wrote:

A $1000 deduction, for someone with a 50% marginal tax rate, means $500 off their taxes.

The OP may or may not be REALLY starting a business. In reality he/she is helping his/her spouse with their business. The amount of income is likely the same for the couple no matter who makes it, but if the wrong person makes it the tax bill is higher. Now if he/she decides to do this for someone else’s practice, then sure, there’s additional income for the couple.

I’m not saying NOBODY has any room in their house that they can dedicate to doing nothing with but Facebooking and direct mail, but when most people really think about it, they’ll realize that’s a job that can be done from the recliner in the family room. The whole “home office” is just a tax scheme.

The reality is that most people use that space for both their business and whatever else they want, then lie to the IRS in order to save on taxes. I figure if you’re going to lie to the IRS, might as well lie big and I can think of a lot more profitable lies than a home office deduction.

But hey, run the numbers yourself and if you figure you can get yourself a $4K deduction, I’m all for it. Just remember the rule- regular and exclusive use of the space for the business. And make sure you’re not paying $8K in SS taxes to get a $1K deduction which is what I suspect may be going on here.

And why are you assuming the OP is a she? Sexist!

Click to expand…

Why would one be paying $8000 in SS taxes in this scenario?

Click to expand…

Let’s say that instead of paying yourself $480K, you decide to pay yourself $400K and your formerly stay at home spouse $80K. On that extra $80K, you would only pay income tax and Medicare tax because you’ve already maxed out your SS tax (which maxes out about $127K this year). But your spouse hasn’t maxed out their SS tax. So in this self-employed scenario, your spouse would pay 12.4% of that $80K in SS tax. 12.4% *$80K = $9,920. Half of that is deductible though, so the actual number would be a little lower, but how much lower depends on the marginal tax rate.

Click to expand...

I "assumed "that the salary would be that high but you are correct.  BTW, I do take a home office deduction for my IC contract work.  Kids moved out, have an extra bedroom converted into an office.  Lots of calculating to do, but works fine.  Internet, phone, etc.  Why not?

[The White Coat Investor]

Hawkeye225 wrote:

The White Coat Investor wrote:

Hawkeye225 wrote:

The White Coat Investor wrote:

A $1000 deduction, for someone with a 50% marginal tax rate, means $500 off their taxes.

The OP may or may not be REALLY starting a business. In reality he/she is helping his/her spouse with their business. The amount of income is likely the same for the couple no matter who makes it, but if the wrong person makes it the tax bill is higher. Now if he/she decides to do this for someone else’s practice, then sure, there’s additional income for the couple.

I’m not saying NOBODY has any room in their house that they can dedicate to doing nothing with but Facebooking and direct mail, but when most people really think about it, they’ll realize that’s a job that can be done from the recliner in the family room. The whole “home office” is just a tax scheme.

The reality is that most people use that space for both their business and whatever else they want, then lie to the IRS in order to save on taxes. I figure if you’re going to lie to the IRS, might as well lie big and I can think of a lot more profitable lies than a home office deduction.

But hey, run the numbers yourself and if you figure you can get yourself a $4K deduction, I’m all for it. Just remember the rule- regular and exclusive use of the space for the business. And make sure you’re not paying $8K in SS taxes to get a $1K deduction which is what I suspect may be going on here.

And why are you assuming the OP is a she? Sexist!

Click to expand…

Why would one be paying $8000 in SS taxes in this scenario?

Click to expand…

Let’s say that instead of paying yourself $480K, you decide to pay yourself $400K and your formerly stay at home spouse $80K. On that extra $80K, you would only pay income tax and Medicare tax because you’ve already maxed out your SS tax (which maxes out about $127K this year). But your spouse hasn’t maxed out their SS tax. So in this self-employed scenario, your spouse would pay 12.4% of that $80K in SS tax. 12.4% *$80K = $9,920. Half of that is deductible though, so the actual number would be a little lower, but how much lower depends on the marginal tax rate.

Click to expand…

I “assumed “that the salary would be that high but you are correct.  BTW, I do take a home office deduction for my IC contract work.  Kids moved out, have an extra bedroom converted into an office.  Lots of calculating to do, but works fine.  Internet, phone, etc.  Why not?

Click to expand...

No reason not to claim it if you qualify and its worth the hassle. Remember that depreciation gets recaptured.

[jfoxcpacfp]

The White Coat Investor wrote:

Remember that depreciation gets recaptured.

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Always important to remember the rules. What I believe is sometimes misunderstood (not by you, of course :-)) is that recapturing the depreciation is only a rightful reversal of the original deduction. Better to take a deduction and return it should you later sell your house than to bypass a write-off the IRS offers you.

[The White Coat Investor]

I agree. But the deduction isn't quite as big as people think it is up front.

The other thing that cracks me up is real estate investors that think it's just a paper loss, like their real estate didn't really depreciate. The reason the government gives that deduction is because the house really does require repairs and upgrades because it really is wearing out as you go along.