[art_director]

Rep. John McHugh of New York, along with Adrian Smith of Alaska, are looking to pair down a deduction from small business -- the home office deduction. I can see trying to stop people who unfairly claim this deduction but their approach penalizes the honest small business person / contractor working at home. This bill flies in the face of the Republicans are in favor and supportive of small business argument / position. Clearly they are not.



H.R. 6214: To amend the Internal Revenue Code of 1986 to provide a standard home office deduction (GovTrack.us)
[www_govtrack_us]

[peeb]

They never have been. They are in favor of huge corporations - since when did small businesses pay them a lot of money?

So the new text would be:

"‘(B) STANDARD HOME OFFICE DEDUCTION AMOUNT- For purposes of this paragraph, the standard home office deduction is the lesser of--
‘(i) $1,500, or
‘(ii) the gross income derived from the individual’s trade or business for which such use occurs."

We'd be allowed to deduct up to $1500 for home office costs.

[peeb]

My SpiderSense is tingling - I detect that SpaceFreak is about to post something stupid...

[spacefreak]

Originally Posted by art_director 

Rep. John McHugh of New York, along with Adrian Smith of Alaska, are looking to pair down a deduction from small business -- the home office deduction. I can see trying to stop people who unfairly claim this deduction but their approach penalizes the honest small business person / contractor working at home. This bill flies in the face of the Republicans are in favor and supportive of small business argument / position. Clearly they are not.

From the small amount of information I've gathered, I don't see the negative effect on small business that you claim. And I haven't seen any widespread Republican support other than the bill's sponsors. Hence, I don't think it's fair to blanket Republicans as being against small business with the available information

Thanks for the head's up. I'm never opposed to giving Republicans crap for stuff I don't agree with. I just don't have enough information to support your claim. Is there any chance you can share some more information so that I can analyze for myself?

Here's what I found on the legislation author's site...

McHugh Introduces Legislation to Help Millions of Americans Benefit from Home Office Tax Deduction

The bill, the Home Office Deduction Simplification Act of 2008, HR. 6214, is designed to reduce the complexity of the tax code and would provide Americans with the ability to take a standard deduction for home office expenses without utilizing the current, more complex formula. Congressmen Randy Kuhl (R-NY), Adrian Smith (R-NE), and Jim Walsh (R-NY) are all cosponsors of the legislation.

“Historically, millions of Americans who are self-employed or work from home do not utilize this important deduction because of its complexity. While many bills in recent years have made the tax code more complicated – this bill achieves the opposite effect and allows taxpayers to take a simple deduction without apprehension,” said McHugh. “This bill will benefit many small business owners who work from home as well – something that will have a real impact in the 23rd District and provide an important benefit for my constituents. People should not pay higher taxes because the tax code is too complex.”

The tax code currently allows for a deduction for home office expenses for self-employed taxpayers and employers who must use their home for business purposes at their employer’s request. However, according to the Internal Revenue Service’s Office of the Taxpayer Advocate, only 2.7 million of the nearly 20 million Schedule C filers in tax year 2003 took a deduction for home office expenses. This is despite the fact that some 8.4 million Americans indicated they had one or more rooms used only for business.

Congressman McHugh’s Home Office Deduction Simplification Act would allow eligible individuals to take a standard deduction of $1500 instead of itemizing their return. Additionally, the deduction would be indexed to the cost of inflation, ensuring that taxpayers receive the full benefit of the home office deduction every year without necessitating further legislation.

[spacefreak]

Originally Posted by peeb 

We'd be allowed to deduct up to $1500 for home office costs.

From what I can gather, this does not disallow itemization if you choose to go that route. It simply provides an easier way to deduct Home Office expenses if you wish to take the easy route.

Again, I'm up for reading additional information and/or analysis if anyone has it.

[peeb]

To be serious, I'm not yet convinced that this bill is a bad thing.

[art_director]

Originally Posted by spacefreak 

From what I can gather, this does not disallow itemization if you choose to go that route. It simply provides an easier way to deduct Home Office expenses if you wish to take the easy route.

Again, I'm up for reading additional information and/or analysis if anyone has it.

Please show where costs associated with a home office can exceed $1,500 / year. That's my primary beef with the bill.

[peeb]

I'm sorry Art - are you supporting, or opposing this bill?

[spacefreak]

Originally Posted by art_director 

Please show where costs associated with a home office can exceed $1,500 / year. That's my primary beef with the bill.

I can't show you anything. That's why I'm asking for more info. Google just isn't my friend right now on this.

My point was that I don't see where the notion of itemization is eliminated. If it's worth it for you to itemize, then itemize. If not, check the box and take the standard $1500.

Also, couldn't you just form an entity (LLC, proprietorship, partnership, S-corp) and pass along expenses through that?

[peeb]

It's expensive to form an LLC.

[spacefreak]

Originally Posted by peeb 

It's expensive to form an LLC.

Not really... it varies by state. Bypassing the third-party services and filling out the form(s) directly with your state will save you money.

Delaware: $135 : DELCORP :: Costs to Setup an LLC
New Jersey: $154 : New Jersey Limited Liability Company $154.95 COMPLETE! New Jersey LLC Formations

Forming an LLC also protects you personally in numerous situations.

How to Protect Your Personal Assets

[art_director]

Originally Posted by spacefreak 

My point was that I don't see where the notion of itemization is eliminated. If it's worth it for you to itemize, then itemize. If not, check the box and take the standard $1500.

Itemization in what respect? Claiming a home office deduction is part of itemizing deductions on your income tax.

Originally Posted by spacefreak 

Also, couldn't you just form an entity (LLC, proprietorship, partnership, S-corp) and pass along expenses through that?

What expenses are you referring to?

For tax purposes some home-based businesses charge their companies rent. A sole proprietor would likely use the home office deduction. LLC could go either way. S-corp would likely got the rent route.

[art_director]

Originally Posted by spacefreak 

Not really... it varies by state. Bypassing the third-party services and filling out the form(s) directly with your state will save you money.

Delaware: $135 : DELCORP :: Costs to Setup an LLC
New Jersey: $154 : New Jersey Limited Liability Company $154.95 COMPLETE! New Jersey LLC Formations

Forming an LLC also protects you personally in numerous situations.

How to Protect Your Personal Assets

In MN the filing fee is approximately $130 for an s-corp or an LLC. If you do it yourself. Legal professionals will suggest that you have an attorney file the paperwork. The reason being that it could make a difference should you face legal hurdles down the road. I'm no lawyer but three have told me the exact same thing.

[art_director]

Originally Posted by peeb 

I'm sorry Art - are you supporting, or opposing this bill?

I'm not opposed to the basic premise -- to limit what can be deducted for a home office. That makes sense. Without such limits you'd have people trying to deduct their entire homes. My beef is with the $1,500 limit, if that's truly the intent.

[art_director]

Originally Posted by peeb 

It's expensive to form an LLC.

Again, the filing fee is inexpensive. If you choose to hire a lawyer you'd incur those costs. Then you have tax prep $, opening of bank accounts and taxes to be paid -- each type of business has it's own rules but assume you're going to be paying quarterly at a minimum. If you're an s-corp you're probably an employee of the company and take a salary. If the yearly salary exceeds $25K you're paying payroll taxes monthly for yourself and any other employees. You might also take draws which are not taxed in the same way -- they are not subject to Social Security tax.

Sorry ... tangent ...

[spacefreak]

Originally Posted by art_director 

Legal professionals will suggest that you have an attorney file the paperwork. The reason being that it could make a difference should you face legal hurdles down the road. I'm no lawyer but three have told me the exact same thing.

If you were concerned about any legal hurdles down the road, you would already have formed an entity for your business. It's the minimum protection you should have.

Have you looked at the paperwork? It's extremely easy to fill out. And there are plenty of online resources to review and learn from.

Ask yourself this: "If one of my clients gets pissed and wants to sue me, am I better protected as is, or am I better protected having a separate business entity?"

The answer is a no-brainer to me, attorney or not. My father is a (semi-retired) attorney, and I haven't consulted with him one iota on my business entity. If he truly felt that I needed an attorney for any of this, he's had plenty of opportunity to step in and get his hands dirty.

I don't know your business, so there may be instances where you do need an attorney (like if you were running a porn site or anything else that straddles the legal-illegal line). But again, if you are working for yourself in any capacity for others, I think it's absolutely necessary that you utilize some entity type to prevent you from losing personal items should something go awry in a business transaction.

I do have an accountant prepare my taxes each year (she charges me $200 or so), and I usually have a few questions to pick her brain about each March. But even when there are modifications that need to be made to my entity, she's always like "Just go to the state's website and fill out the such-and-such form."

I've also had an S-corp.... that was a major pain-n-the-butt. For small-time shops, I say stay away from incorporation. One-man LLCs and sole proprietorships are not nearly the hassle.

[spacefreak]

Originally Posted by art_director 

Again, the filing fee is inexpensive. If you choose to hire a lawyer you'd incur those costs. Then you have tax prep $, opening of bank accounts and taxes to be paid -- each type of business has it's own rules but assume you're going to be paying quarterly at a minimum. If you're an s-corp you're probably an employee of the company and take a salary. If the yearly salary exceeds $25K you're paying payroll taxes monthly for yourself and any other employees. You might also take draws which are not taxed in the same way -- they are not subject to Social Security tax.

I think you'd be pleasantly surprised at how much easier an LLC is to operate than a corporation/s-corp. Like I said, the end-of-year totals get passed to your 1040. The hardest thing with my LLC is getting my invoices out on a regular basis.

[art_director]

Originally Posted by spacefreak 

If you were concerned about any legal hurdles down the road, you would already have formed an entity for your business. It's the minimum protection you should have.

Forming the business is forming an entity.

Originally Posted by spacefreak 

Have you looked at the paperwork? It's extremely easy to fill out. And there are plenty of online resources to review and learn from.

Ask yourself this: "If one of my clients gets pissed and wants to sue me, am I better protected as is, or am I better protected having a separate business entity?"

The answer is a no-brainer to me, attorney or not. My father is a (semi-retired) attorney, and I haven't consulted with him one iota on my business entity. If he truly felt that I needed an attorney for any of this, he's had plenty of opportunity to step in and get his hands dirty.

I don't know your business, so there may be instances where you do need an attorney (like if you were running a porn site or anything else that straddles the legal-illegal line). But again, if you are working for yourself in any capacity for others, I think it's absolutely necessary that you utilize some entity type to prevent you from losing personal items should something go awry in a business transaction.

When I said I'm no lawyer but three have told me the exact same thing. I meant I'm no lawyer but three have told me the exact same thing.

Originally Posted by spacefreak 

I do have an accountant prepare my taxes each year (she charges me $200 or so), and I usually have a few questions to pick her brain about each March. But even when there are modifications that need to be made to my entity, she's always like "Just go to the state's website and fill out the such-and-such form."

I've also had an S-corp.... that was a major pain-n-the-butt. For small-time shops, I say stay away from incorporation. One-man LLCs and sole proprietorships are not nearly the hassle.

True, an s-corp takes more effort but it also has benefits that are not available with LLCs or sole props. The most notable being the tax benefit. Operating as an s-corp is more expensive come in terms of tax prep but can save a lot of money once your income passes a certain threshold. In the end, if you make enough, you can save a lot of money. Literally. The question then becomes how much is the inconvenience worth to you.

[art_director]

Originally Posted by spacefreak 

I think you'd be pleasantly surprised at how much easier an LLC is to operate than a corporation/s-corp. Like I said, the end-of-year totals get passed to your 1040. The hardest thing with my LLC is getting my invoices out on a regular basis.

An LLC operates in much the same way as a sole prop come tax time. It's quite simple. But, if you make over $60K, going the route of an s-corp more than pays for itself. A general rule of thumb is that for every $100K in income you can save as much as $5K on your taxes by operating as an s-corp. Needless to say you'd take accounting fees out of the savings.

When run through a competent small business tax expert an s-corp isn't much hassle.

[art_director]

Freak: I'm curious to hear what you thought was so difficult / inconvenient about an s-corp. You peak strongly against it.

[spacefreak]

Originally Posted by art_director 

Freak: I'm curious to hear what you thought was so difficult / inconvenient about an s-corp. You peak strongly against it.

As a one-man shop, I just could not stand all the little filings I had to stay on top of on a quarterly basis. I was much younger, so maybe today I'd be better with it. I just recall constant mailings from the IRS and state updating me on this, that, reminding me to file this, that... I just wanted to work my business and total it all up at the end of the year. With an LLC, I've been able to do just that. Ultimately, I wanted the least hassle.

It sounds as if you have experience with operations that include more than one person (ie. employees). I'm sure the discrepancy in "hassles" is much less if I were to bring employees on board.

I'm sure you know more than I based upon the content of your posts here. I was just trying to point out to folks working from home for themselves that the notion of super-expensive lawyer and/or filing fees was not something I experienced in my LLC formation.

[art_director]

Originally Posted by spacefreak 

As a one-man shop, I just could not stand all the little filings I had to stay on top of on a quarterly basis. I was much younger, so maybe today I'd be better with it. I just recall constant mailings from the IRS and state updating me on this, that, reminding me to file this, that... I just wanted to work my business and total it all up at the end of the year. With an LLC, I've been able to do just that. Ultimately, I wanted the least hassle.

It sounds as if you have experience with operations that include more than one person (ie. employees). I'm sure the discrepancy in "hassles" is much less if I were to bring employees on board.

I'm sure you know more than I based upon the content of your posts here. I was just trying to point out to folks working from home for themselves that the notion of super-expensive lawyer and/or filing fees was not something I experienced in my LLC formation.

Not trying to talk you into converting to an s-corp but you might find exploring it again to be worth your while whether you're the sole employee or not. An accountant specializing in small business could wrangle all the paperwork at a reasonable price allowing you to run your business.

[spacefreak]

I'm actually in the process of transforming my business model, so I think in a few months this may be worth exploring.

For now, spacefreak (the business owner) is ordering spacefreak (the employee) to get the hell off the message boards and get back to work. So I gotta bail before my boss has a hissy fit.