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.

 

 

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The mystical date of April 15th has become so synonymous with “Tax Day” in this country that they are interchangable.  I have been seeing all kinds of people, including tax scholars and pros, say that 2005 tax returns are due on April 15 this year.  That is not true.

Ever since I have been in this business, IRS has had a policy of automatically extending tax filing deadlines if the statutory one falls on a weekend or a holiday.  Since April 15, 2006 is a Saturday, the normal deadline to file either the 1040 or the extension (4868) is on Monday, April 17. 

For some states in the eastern part of the country, they celebrate Patriots’ Day on the third Monday of April, which just happens to be April 17 this year.  This moves their tax deadline to Tuesday, April 18.  The affected states are: Maine, Massachusetts, New Hampshire, New York and Vermont.

This may seem like a minor technicality to some people. However, any tax pro can relate to the experience of having hundreds of clients panicking at not having their 1040 or 4868 done by April 15, when there are actually two or three more days until the actual deadline.  That extra breathing room is extremely valuable in the pressure cooker world of tax preparation.  

Also, one more reminder that the Form 4868 extension that you file by April 17 is for six months, moving the 2005 1040 deadline to October 16, 2006 because October 15 is a Sunday.  Even though we are including an explicit statement of this fact on the 4868s we are preparing, I’m sure we will be receiving a ton of panicky calls from clients around August 15 assuming that is the deadline.  Old habits do die hard. 

As I’ve pointed out for decades, the higher the adjusted gross income on your 1040, the more likely IRS will be to hassle you.  This is in addition to the fact that our rulers also have you in their cross-hairs by phasing out deductions, exemptions and credits for those they consider to be evil rich, as defined by high AGI. 

IRS Audits Increase By 21 Percent

IRS also says the number of audits of high-income taxpayers – defined as those with income of  $100,000 or more – reached 219,208, the highest figure in 10 years.

2005 IRS Data Book Details Rise in Audits – From IRS, reminding us all that Big Brother is watching us more closely than ever.

What to do about this? 

You can utilize income smoothing techniques, such as with C corporations, in order to keep your 1040’s AGI from reaching into the higher profile levels.   

You should make sure your books are in good shape and can support everything shown on your tax returns.  The best way to to do this is to have all of your records entered properly into QuickBooks.  Audits I have handled where the clients had their stuff in QB were completed very quickly and successfully.  Those for shoe-box clients drag on for years, costing huge amounts in fees and ultimately taxes. 

Work with a qualified tax professional. It is too dangerous to swim in the IRS shark infested waters alone. 

You also have the option to do nothing special to protect yourself from IRS hassles.  Some refer to that as the “ostrich” or “it can’t happen to me” approach.  These are often the same people whose retirement planning consists of buying lottery tickets.