Sale of Data by Tax Preparers Draws Protests – This is a ridiculous idea and is just one more aspect of your relationship with your tax preparer that you will need to keep on top of. 

As I mentioned in my earlier discussions of tax prep offices outsourcing their actual work to outfits in India, it wouldn’t be a bad marketing tactic for USA tax prep firms to explicitly guarantee to their clients that their highly confidential data will not be released to anyone without the express written consent of the client. It used to be implicitly understood that such was automatically the case for CPA firms; but things have obviously changed.

As I hope everyone has noticed, I don’t like to waste time repeating what others have already written so well; so check out the excellent coverage of this issue by:

 Joe Kristan of Roth & Company

 Professor James Maule

 

 

Q:

Subject: home rental by my own business

For years I have leased the garage portion of my personal home to my partnership for the purpose of storage.  The garage is approx. 25 percent of the total square footage.

I have taken 25 percent of my mortgage payments and utilities as business deductions.

Now I would like to know if it is  legal to lease my entire home to my business, and then sublease it back from my business, so that my business can deduct the usual deductions for for rental property?

The home is presently titled in my name.  I am hoping that I do not have to get a new title for the house, in the businesses name, to do this.

If yes, are there any federal taxes at the sale of the property?

Could you please email the answer in case I can’t find it on your web site.

Thank you very much.

A:

There are ways to do this, most often by transferring the home to a corp.

You should really give this plan some deep thought, along with some in depth consultations with your personal professional tax advisor.  Most of the people I have seen do this later regret it when they discover that the home no longer qualifies for the Section 121 tax free exclusion of up to $500,000 of profit.  That exclusion is not available for rental property or for property owned by anyone other than an individual.  More often than not, that tax free gain more than offsets the “lost deductions” from not being able to claim the home as full rental.

Good luck.

Kerry Kerstetter

 

Q:

Subject: C Corporation

 

Hi Kerry,

 

Thank you for the excellent advice.  I’ve met with at least 30 attorneys and CPAs to discuss setting up a corporation.  Most tell me to start an S corp..and some an LLC…none of them understand the benefits of the C corp.  Is there an an Accountant you recommend to people who write you?  I would love to work with someone who just know what they are talking about!

 

Thanks for your help.

A:

C corps aren’t always the proper approach; but it is amazing how many tax pros don’t even properly consider how they can be of use.

You will need to work directly with an experienced tax pro who can analyze your unique circumstances.

Unfortunately, we don’t have anyone to whom we could refer you. If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.

I’m sorry I couldn’t be more help.

Good luck.

Kerry Kerstetter

 

Tom Briscoe‘s look at why most people have no clue as to their true tax burden. There really would be a much stronger push for tax reductions if there were no more withholdings and hidden taxes, and everyone had to write actual tax checks to pay their share of the cost of government.

Q:

Subject: Business miles/Home office

Kerry,

Having an ongoing discussion on a message board regarding deductible business miles/home office.

For a self-employed taxpayer, with his home being his principal place of business. Does TP have to meet the rules for business use of the home to be able to deduct business miles? In the TaxBook Deluxe, page 5-13, it talks about Business use of home tax advantages. Seems to imply that if you can’t qualify for business use of the home, then you can’t deduct business miles, say from home to client A, etc. Am I reading that wrong? I thought a TP could deduct miles if his home was his primary place of business, from the minute TP leaves the driveway, say to pickup supplies or visit client A, etc. If some on the message board are correct, then say the TP uses the home office even 1% of the time (not exclusive) for personal purposes, then no deduction for business miles. Any feedback appreciated. Thanks.

A:

I checked out some of the messages in that discussion and saw the variety of opinions expressed there.

While having a space in the home that meets the exclusive use test for home office deduction would be perfect support for the premise of zero nondeductible commuting miles, I don’t believe it to be a deal killer if the space is not exclusive. 

There are plenty of people who don’t have space in their homes that can be devoted 100% of the time to their businesses, but do run everything from their homes, such as on the kitchen or dining room tables.  In those cases, where they truly don’t have another office to drive to, all of their miles would be deductible in the exact same manner as for someone who has an 8829 compliant office.

As always, the burden of proving the legitimacy of this lies with the taxpayer; so attaching a statement to the 1040 explaining the situation would be a wise move to head off any IRS suspicion.

I hope this helps.

Kerry Kerstetter

Follow-Up:

Kerry,

 

Yes, a big help. I very much appreciate your responding.

 

 

Fight building over Calif’s ReadyReturn tax-filing program – Anyone crazy enough to allow the FTB to prepare their tax returns for them deserves what they get.  Can anyone say “conflict of interest?” 

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