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.
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Remember that depreciation gets recaptured.
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.Leave a comment:
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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!
Why would one be paying $8000 in SS taxes in this scenario?
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.
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?
No reason not to claim it if you qualify and its worth the hassle. Remember that depreciation gets recaptured.Leave a comment:
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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!
Why would one be paying $8000 in SS taxes in this scenario?
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.
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?Leave a comment:
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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!
Why would one be paying $8000 in SS taxes in this scenario?
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.Leave a comment:
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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!
Why would one be paying $8000 in SS taxes in this scenario?Leave a comment:
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I doubt your intuition is wrong. I’m mostly just making fun of how often I’m called out by readers for being sexist for doing something similar. Maybe domodomo will return to the thread and let us know.
If you read carefully, I’m pretty sure I never said “$500 deduction.” Here’s the direct quote:
Even if those expenses are $50K a year (which has gotta be 3-5 times what mine may be) that’s a $1000 deduction, so $500 off your taxes.
I’m not denying I don’t get by with a few things that you don’t, but it works both ways.
What do you mean, if I read carefully?
that’s a $1000 deduction, so $500 off your taxes. Don’t pay an extra $8K in SS taxes to get a $500 deduction.
Why don’t you just go back and edit your post and take it out? Then I wouldn’t have to read so carefully. It’s making my eyes hurt.
Burned. You got me. I could not for the life of me figure out what you were referring to.Leave a comment:
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I doubt your intuition is wrong. I’m mostly just making fun of how often I’m called out by readers for being sexist for doing something similar. Maybe domodomo will return to the thread and let us know.
If you read carefully, I’m pretty sure I never said “$500 deduction.” Here’s the direct quote:
Even if those expenses are $50K a year (which has gotta be 3-5 times what mine may be) that’s a $1000 deduction, so $500 off your taxes.
I'm not denying I don't get by with a few things that you don't, but it works both ways.
What do you mean, if I read carefully?
that’s a $1000 deduction, so $500 off your taxes. Don’t pay an extra $8K in SS taxes to get a $500 deduction.
Why don't you just go back and edit your post and take it out? Then I wouldn't have to read so carefully. It's making my eyes hurt.Leave a comment:
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I doubt your intuition is wrong. I'm mostly just making fun of how often I'm called out by readers for being sexist for doing something similar. Maybe domodomo will return to the thread and let us know.
If you read carefully, I'm pretty sure I never said "$500 deduction." Here's the direct quote:
Even if those expenses are $50K a year (which has gotta be 3-5 times what mine may be) that’s a $1000 deduction, so $500 off your taxes.
Leave a comment:
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And why are you assuming the OP is a she? Sexist!
Guilty as charged. Would love to know if my intuition is correct and I'll happily eat humble pie if I'm wrong.
that’s a $1000 deduction, so $500 off your taxes. Don’t pay an extra $8K in SS taxes to get a $500 deduction.
Make up your mind. Is it a $1k deduction or a $500 deduction? But we are getting a bit petty. Sorry about that.Leave a comment:
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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!
Leave a comment:
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I also don’t think setting up a home office is the most important aspect of this. The home office deduction is generally pretty small because most of us aren’t willing to dedicate a significant portion of our house exclusively to the side business. I don’t take it at all, for instance. There’s nothing in the house that only gets used for WCI stuff.
What applies to you doesn’t apply to the rest of the world. Our clients tend to have expensive houses with lots of big rooms available for nice home offices. Not all of them have (5?) kids filling up all of the bedrooms. Sorry you can’t find space to run your 7-figure business out of one and deduct a proportionate amount of HO insurance, utilities, R&M, RE taxes, mortgage interest, and depreciation, but it might be worth more than you realize.
I guess the counter argument is that if you have space in your house that you only use for a business that didn’t even exist a year ago, that you bought way too much house. There are very few home businesses that can’t be run in space used for something else at other times. I’d rather have full use of my house than a minor deduction, part of which is recaptured eventually and part of which might go to someone else to spend time taking care of the paperwork on it.
I think people really need to run the numbers on this deduction. I mean, if you have a 5000 square foot house and you dedicate a 10×10 room to your office, you’re only getting to deduct 1/50th of your home expenses. Even if those expenses are $50K a year (which has gotta be 3-5 times what mine may be) that’s a $1000 deduction, so $500 off your taxes. Don’t pay an extra $8K in SS taxes to get a $500 deduction.
LOL, i meant to hit quote and I hit like, but I do like your tenacity. You are great at boiling down the complex to simple syrup, but I'm talking about $3k - $4k deductions annually, not $1k. And you turned a $1000 deduction into a $500 deduction. What's next? Not to mention ignoring my statement that the OP was talking about starting a business. You're telling the OP NOT TO START A BUSINESS AND MAKE MONEY so she won't pay any SS taxes. HUH?
Actually, I've known many people who bought a house with an extra room or even 2 and didn't fill it for a few years and didn't consider themselves to have bought way too much house. Maybe planning ahead for in-laws, for another child, for a man-cave, or something else. Seriously, you've never thought ahead like that? You just move in and fill up all the space, wham bam?Leave a comment:
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