How to get money out of your business tax free! Tax Savings and tax reduction with low audit risk from the use of your home for business purposes.

 

  

By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm specializing in tax reduction and tax savings!  

Jeff can be reached at   jeff@jbrookswa.com  602-292-2009  Please consult with your professional tax CPA regarding your specific circumstances!

Did you know that the new tax act allows you to have two offices?

One for operations and one for administrative use. You have to be very careful to dot the “I”s and cross the “T”s and follow the rules.

  VERY few CPAs know about this tax loophole.    

 There is a better way to deduct home office expenses then the the two ways that do NOT work! 

Why?   There is a new tax loophole that was opened by mistake in the new tax act. 

To qualify, I will list two of the 6 requirements: 

1.  You would have to spend at least 10 hours working from home.

2. You would have to have a signed letter from your employer requiring you to work from home. 

We  have clients who are legally receiving $18,000 to $20,000 per year tax free!!  There is minimal audit risk!  We only disclosed this intellectual property with ALL of the REQUIREMENTS  to our loyal clients!

 What doesn’t work!

I was recently speaking at a tax seminar that included lawyers who were liable for additional taxes and penalties because they did not know the Internal Revenue Code. It isn’t their fault! There isn’t enough hours in the day to learn everything they need to know about taxes!

  Several of the attorneys were allowing their S corporations and partnerships to take a deduction for the business use of their homes.  Should the lawyer or attorney be audited, the IRS would disallow the tax deductions. Internal Revenue Code Section 280A C6 does NOT allow a tax deduction for the rental of a home office by the corporation and partnership!! 

 

Larry Lawyer rents his home office to his S corporation for $18,000 per year ($1,500 per month) .  Should the IRS audit Larry’s S corporation,  the $18,000 will be disallowed for the current tax return AND previous year tax years that are still open.

If Larry is in the 40% tax bracket, he will have to pay $7,200 for  each of the three tax years or $21,600 plus penalties!! 

Larry will be allowed to deduct the full interest deduction (up to $1 million of acquisition indebtedness) and real estate taxes (unless there is an Alternative Minimum Tax problem).

One of the lawyer attorney (I will call her Sally) said she deducted the business percentage of her home office as an employee business expense.

The problem is that Sally is not able to deduct the first  2 percent of her adjusted gross income.  If Sally’s adjusted gross income is $200,000, Sally will not be able to get the benefit of the office admin expense unless Sally has total miscellaneous itemized deductions inn excess of $4,000 which is unlikely to happen.

Sally gets zero benefits. 

Also the Alternative Minimum Tax could kick in disallowing all of Sally’s employee business expenses.   Large employee business expenses trigger IRS audits!

 We supply our Loyal Clients with an Excel spreadsheet that simplifies the required documentation.  We also “hand hold” by helping our Loyal Clients prepare the correct documentation!

 Excel spread sheet summary for one month?

                                                                                   January               Annual

Reimbursement Amount            3,473.09    41,677.03
Tax Savings            1,736.54  20,838.51
Office Space Expense  % Calculation  Tax Bracket
Total Number of Rooms/net square ft                        3000  Federal

45.00%

Business Rooms/net square ft                             600  State

5.00%

Home Office %

20.00%

 Total

50.00%

 

 

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com