IRS Tax Questions Thread

[Paelos]

You can't deduct your full rent for home office, just the percentage you use for that office. And here's the kicker, if you use your office for any personal shit (ie - you surf the web from the same place, or your fiancee uses the same computer) you're fucked.

I'm assuming you weren't a W2 employee, and were doing contract work?

[schild]

% of square foot yes. I was doing contract work yes. How do they even calculate that other shit. I used to surf the web at godaddy more than I did work.

Taxes are retarded.

[schild]

My fiancee has her own computer. No one uses mine but me.

My office room is technically like 400 sq ft of a 800 sq ft apartment. I used it only for work last year.

Edit:

[Paelos]

Then you'd deduct your business expenses against your 1099 revenue on a Schedule C form of your 1040.

As an aside, I'd be inclined to call bullshit on a client that said half his apartment was his exclusive office. I've never seen that on a tax return, ever. 33%, sure. 50%? You're pushing it. But if you do take it, you get the rents and utilities on a pro-rated basis. In addition you get your car mileage (it should be documented), your business meals and entertainment for business trips including any travel, and your computer expenses that aren't fixed assets (monitors, printers, phones, anything that has a useful life of more than a year). Fixed assets such as your office furniture, computer, printers, phones, modems, get depreciated as fixed assets over their tax assigned lives. In most cases this is 5-7 years.

Other business expenses would be: Educational expenses to stay current with a certification, professional dues and subscriptions, training expenses, legal or professional expenses, etc.

[schild]

What about R&D like games and such put towards furthering my ability to do future jobs and current ones? =D

Edit: Also, have you ever had a client that lived in an apartment that was like 798 square feet where half of it was one room and the other half was a bathroom, closet, and bedroom? That other room IS my office during work hours of every single day.

[Paelos]

If you can defend the fact that you live, eat, sleep, watch TV, play games, and shit in 400 square feet? Claim it. I'm just giving you a heads up that the requirements are strict on home offices, and I've never seen it. Then again, I'm not signing your return, you are.

Any expenses you put into procuring future jobs can be expensed as development costs. However, you'd have a hard time on games due to the personal entertainment nature of the product.

[schild]

Let's back up. I'm reporting far less than 400 square feet after looking at the thing. However, I split a part of rent with someone. When asked how much rent is per month, do I put the amount *I* put in, or the total cost of rent?

[schild]

Also, talk to me about what triggers red flags. I wouldn't mind deducting software/games/etc as something to further design abilities.

[shiznitz]

Home office deductions are one of the biggest audit triggers.  That said, most people accused of abusing it are not talking about a few grand here or there.  Just be prepared to defend what you claim.  That goes a long way.

[schild]

I'm claiming like 150sq ft of like 800 and some software / equipment (which is on the depreciation schedule) and nothing else. It's a pretty low amount of shit.

[Paelos]

I'm claiming like 150sq ft of like 800 and some software / equipment (which is on the depreciation schedule) and nothing else. It's a pretty low amount of shit.

That's much more reasonable than half. And yes, you can only report what you paid personally in rent. You can write off software. Very few people will actually check on what kind of software you mean, unless you get an IRS letter, or unless it's an absurdly large portion of your business expense.

Business expenses are fairly straight forward. The simple rule is that you can only deduct the actual cost of what you bought, and you can only deduct the percentage of that cost which you use for business. If you paid $1000 for a cell phone during the year, and you use it 70/30 business to personal, you deduct $700. This goes with almost everything.

Here's a good IRS letter trigger since you asked. People who are self employed with schedule C's who hit their withholding almost exactly, so they don't owe and hardly get a refund if any, and prepare their own returns. If I'm looking as an agent for somebody cramming expenses through, I'm looking for the guy who realized he was about $1000 off of his withholding and just started making shit up. Also, nobody really plans their withholding THAT well, even with help.

[schild]

Going to PM you a couple questions.

[schild]

Actually on second thought, you answered my question. I did not know I could claim like 50/50 on things like cell phone usage etc. Which makes a lot more fucking sense than just saying NOPE due to me using it personally outside of business hours. Ok then. Thanks. And no, I'm not trying to get ANYWHERE near hitting my withholding mark.

[schild]

Did I ask this already: Can I deduct what I paid my fiancee for health insurance through her company so I had coverage?

Edit: Actually did ask this, never got a specific answer though.

[Johny Cee]

Did I ask this already: Can I deduct what I paid my fiancee for health insurance through her company so I had coverage?

Edit: Actually did ask this, never got a specific answer though.

Did you pay the insurance company or your fiancee?  If you paid the insurance company or her company that had the plan, then it probably isn't an issue to claim it.  If you paid anyone else, I would have to look it up but probably no.

[schild]

I gave money to my fiancee every month (it's not that much, it's a claim of 77*9).

[Viin]

The more you try to get in there the more likely you'll get audited. If it only saves you $20 on your taxes I'd skip it.

[Paelos]

I gave money to my fiancee every month (it's not that much, it's a claim of 77*9).

How does that even work? You're on her insurance as a dependent?

[schild]

I gave money to my fiancee every month (it's not that much, it's a claim of 77*9).

How does that even work? You're on her insurance as a dependent?

Yup Domestic Partner / Dependent (they classify the former as the latter).

[Paelos]

It's in a weird area of tax law. Expenses are supposed to be you paying for something. Not you paying somebody to pay for something. The IRS hates the idea of allowing that stuff, because it becomes untrackable. However, they've been taking to court over it several times with varying results on the circumstances.

Example, you can deduct a donation to a charity, but you can't deduct a donation to a person. What if a person gave money to a charity on your behalf? The IRS still says no, you can't make the deduction unless you personally gave the money. No third parties.

My guess is that no, you'll get nothing for the deduction. One because it's under a strange section of the law, two because it's not worth it to you due to the amount.

[schild]

Interesting. I mean, if there were a way for them to bill me, we'd do that. But I have no way of doing that as it just comes out of her paycheck every month. Bleh. Ok. Time to find other things.

[Numtini]

It's not even deductible for her. I get two line items on my paycheck, one for my insurance before taxes and the other for the difference between that and a family plan that covers my partner (legally married, except for DOMA) and daughter that I have to pay tax on.

[schild]

Yea, wasn't really worried about Line-item deductions for her.

[Paelos]

Yea, wasn't really worried about Line-item deductions for her.

Numtini is correct though that your situation is one of many key issues of the differences between state and federal reporting when it comes to domestic partners. Beyond that explanation, it gets into the political lobby arena, which is beyond the scope of this thread.

[Lantyssa]

Texas doesn't have a real domestic partnership category anyways.  It will be an insurance company designation.  The closest we have is common law marriage, and I imagine that would be an even bigger headache in regards to taxes.

[schild]

Most companies in Texas, I have since found out (except for ass backwards shitty ones) consider someone a domestic partner after a year of living together, making insurance stuff REAL EASY.

[schild]

Sorry for bumping this, but I recently got a letter from the IRS. I'm not getting audited or anything, but it says the folllowing:

You have unpaid taxes for 2012
Amount Due: $124.72
Our records show you have unpaid taxes for the tax year ending 12/31/2012 (form 1040)

Taxes you owed: $X,XXX
Payments and Credits: -$X,XXX
Failutre to pay proper estimated tax penalty: $124.72
Amount due by June 3, 2013 $124.72

The Xs are the entire amount owed. I paid every dime on time. I have no clue what I'm being penalized for exactly.

On the back it says "Failure-to-pay proper estimated taxes" and then gives periods of dates ranging from 15 days to 107 days (5 different periods) and some arbitrary numbers to the right of them. Like, super arbitrary, I have no clue where they came from.

I plan on calling them but I'd like some information. The internet is a horrible place to search for tax code clarification.

[Trippy]

If amount paid == amount owed then most likely they received your payment late for some reason.

[schild]

Oh, interesting. So it's like an automated thing.

[Trippy]

Oh, interesting. So it's like an automated thing.

Yes.

This is also why you hear people saying the IRS should just tell you how much you owe/what your refund is instead of you filling out the forms. For most people all of their income and taxes paid are reported directly to the IRS already (your employer(s), financial institutions, etc.). So, for example, if you forget to report, say, a 1099-MISC amount on your taxes their computers will pick that up automatically and send you the same kind of notice you got above.

[schild]

Fantastic. Will call them and get it sorted out. I assume I don't need to send the letter back (as there's no option on it for - "NO, YOU ARE THE PENALTY")

[Paelos]

Did you pay 90% of the tax in the current year in withholding or withhold 100% of the total tax you owed in the prior year?

You may not have withheld enough, and you may have been in a position to pay estimated taxes throughout the year.

[schild]

I withheld nothing, I was a 1099 the whole year everywhere I worked. At the end of the year I paid 100% of taxes owed.

How would I even know if I were expected to pay estimated taxes? (Yes, I'm aware ignorance is not an excuse).

Given what I paid, the $124 is like an arbitrary pittance.

[Trippy]

I withheld nothing, I was a 1099 the whole year everywhere I worked. At the end of the year I paid 100% of taxes owed.

How would I even know if I were expected to pay estimated taxes? (Yes, I'm aware ignorance is not an excuse).

Given what I paid, the $124 is like an arbitrary pittance.

There's a formula/worksheet for this (1040-ES). I forgot about this since it's been a while where I've gotten most of my income sans withholdings but if your estimated taxes owed is >$1000 you should've been making estimated tax payments during the year (once a quarter usually).

[schild]

So I'm getting penalized on being late paying ESTIMATED taxes even though I paid my actual 100% taxes.

Which means I'm getting penalized for not being a seer?