Q:

Subject: “C” vs “S” and Home Office

Tax Guru

I have been following the “C” vs. “S” debate in your blog with great interest. My tax guy hasn’t brought it up yet, but I have two questions before I ask him about it.

Is there a net income amount where a “C” corp would be better than an “S” corp (my business is at $150,000 presently).        

 

Also as a sole proprietor now, on what form would my office in the home expenses go for my 100% at home business? I’ve heard you can’t take it and since this amounts to several thousand dollars before depreciation now, I wouldn’t want to lose it.

 

Your assistance will be greatly appreciated.

 A:

 If your business is making $150,000 per year, you’re asking to be raped financially by trying to do your own taxes and not using the services of a tax pro who understands the very simple techniques of minimizing taxes.

As I said in my article on S vs C corps, an S corp only makes sense tax wise if it has a net loss, or you have plenty of other deductions and losses on your 1040 to offset its income.  If you have a positive taxable income before counting the S corp K-1 pass-through, you will just be pushing yourself into the higher brackets.  The best approach is to use a smoothing technique of spreading income between the 1040 and 1120 so that the overall effective tax rate stays as low as possible.  Having good up to date QuickBooks data for both your corp and personal finances is essential to accomplishing this goal.

Form 8829 has long been the official home office schedule, as any tax pro would know.

Kerry Kerstetter

I frequently receive email similar to this:

REREAD YOUR INFO. DAMN IT! WAS HELPFUL.KEPT ME FROM MAKING YET ANOTHER DUMB MISTAKE. WHEN MY AZ CORP MAKES ME RICH, I’M GONNA OFFER YOU

A FREE  FISHING TRIP.

I usually reply with the following warning, which I hope everyone will heed.

I’m glad that you found the info useful.

However, I hope you realize that it is dangerous to use any such info, from my website or any other source, without the additional counsel of a tax pro in order to ensure that you come up with a strategy that works best for your particular circumstances.

Good luck.

Kerry Kerstetter

 

Q:

Subject: capital gains on personal residence

just finished reading your post, and wanted to ask this:  How does the IRS define the purchase of the one’s personal residence – is that the day that the title is transferred?  What if you leased with the option to buy for some time before exercising the option, does that time count?

Thank you for your informative blog!

A:

To qualify as owning it, your name must be on the title for the property.  Leasing it does not qualify, whether you have a purchase option or not.

Kerry Kerstetter