Video instructions and help with filling out and completing Fill Form 1094 B Import

Instructions and Help about Fill Form 1094 B Import

Hello everyone Steve rebel with shriek my taxes here bringing you another quick tax topic video a lot of people are afraid of IRS audits some people are so afraid in fact that they won't take a legitimate deduction on their tax return because they don't want to raise any red flags one of the top ten red flags is the home office deduction so today I thought we'd spend some time to walk you through what you need to know in order to take this deduction the right way let's begin by finding out what you're up against one of the chances of you facing an IRS audit well the most recent data you look at last year overall about 1.1 percent of all tax returns ended up getting audited that comes out to about one out of every 90 tax returns if your income increases your chances of getting audited also increase about twelve and a half percent of taxpayers with incomes over a million dollars ended up getting audited four percent of taxpayers with incomes between 200,000 and a million dollars ended up receiving an IRS audit while just over one percent of taxpayers with incomes under 200,000 ended up getting an IRS audit business returns actually or even less under one percent point six three percent of all business returns got an IRS fought it for tax year 2010 what happens if you lose an audit if the IRS disallows the deduction you're gonna get hit with not only the taxes due but you also get hit with penalties and interest and that's not fun so let's look at the home office deduction and how you can do this the right way this data is gonna come out of IRS publication 587 if you want to look that up on Google to be able to take the home office deduction your use of the business part of your home must qualify out of two things number one it has to be exclusive regular and for your trade or business so it has to meet those requirements it has to be exclusive for your business regular you regularly used and it has to meet for your trade or business ii require is the business part of your home must be one of the following it should be either your plinth principal place of business or it has to be a place where you meet or deal with patients clients or customers in the normal course of your trade or business one of the confusing parts of this is exclusive use so exclusive what does that mean exclusive means that a specific area of the home is used only for trade or business it's can't also be used for the family to watch TV or a spare bedroom or something like that it has to be used exclusively for your trade or business so keep that in mind now there's two ways to calculate the home office deduction and this might be new to a lot of people out there you've got the square footage method which a lot of people are familiar with but you've also got the room method which is less known out there and the important thing here is you can use either method so let's look at the square footage method in essence what you're gonna do is take the square footage of your office and divide that by the square footage of your home you are allowed to subtract square footage of common areas in your home such as hallways entries stairwells landings and garages looking at an example if you had a 200 square foot office in a 1,600 square foot home your deduction comes out to 12.5% of your expenses is you're able to deduct the room method a little bit different you're looking at the number of rooms used for business divided by the number of rooms in your house the important thing here is that you can exclude bathrooms closets garages so for example let's say you've got one room used in a five room house excluding bathrooms closets and garages your deduction comes out to 20% you can use either method as I said before and we always encourage our clients to to look at both methods and obviously take the one that's going to benefit them and give them the greatest deduction where do you report your home office expense if you're a sole proprietor and you file Schedule C it goes on Form 88 29 if you're an LLC a partnership you're gonna attach a Schedule II and Part two to your 1040 if you're an S corp owners you're not able to take it as a director business expense so it's gonna go on a Schedule A of your personal 1040 as an unreimbursed employee expense now business owners LLC's partnerships s Corpse what we always encourage our clients to do is to reimburse themselves directly through what's called an accountable plan and this is a corporate document that you set up with your LLC or partnership or S corp that enables you to take a business tax deduction for the monthly use of your home office and there's no income tax consequence to you on a personal level so your business gets the tax break and you don't have an income tax consequence on a personal level so let's look at the two types of expenses that you're able to take with your home office deduction you've got direct expenses you've got indirect expenses direct expenses are exclusively for the home office and these you can take 100% some examples of direct expenses might be if you decide to paint your home office a hundred percent of that cost you're able to duck directly if you put new carpet or new flooring in your home office that is a hundred percent deduction or if you remodel a bathroom that is in your