By Howard Abrams
PBS Tax & Bookkeeping
‘Homework’ and other deductions
Q: I do my paperwork in my home. Can I deduct the business use of my home?
A: Your principal place of business is the location where the most important activity of that business is performed. Even though you are out on the road making your pickups and deliveries, the administrative and management part of your business is most important.
However, to qualify for deductions for the business use of your home, it must be the only place that you perform those functions. You need to have an area in your home that you use regularly and exclusively for the business functions.
Filing paperwork once a year is not enough to constitute regular use. If it’s once a week, you have a better chance of substantiating the deduction than if it’s once a month.
It is best if your so-called home office is a separate room, used as an office only. But any part of a room will qualify as long as the area is used for business only.
If you work at home as an employee rather than being self-employed, the same requirements apply and the work you are doing in your home must be for the convenience of your employer.
That means your employer cannot provide you with an office to do administrative work in. The employer must require you to do the work at home. Though legal, this kind of home office deduction is one that is scrutinized somewhat more than others by the IRS.
Q: I’ve been in business, and some of my friends have told me that I should incorporate. What is the best way to run my trucking business?
A: We suggest truckers new to business begin their operations as sole proprietors. Sole proprietorships are the simplest form of business to own and operate and are the least costly to set up.
Sole proprietorships are not considered a separate legal entity. No separate tax returns are filed by sole proprietorships. The sole proprietorship business is reported as part of the owner’s individual income tax return.
Although sole proprietorships are the easiest business form to set up and the least expensive to operate, the owner of a sole proprietorship is responsible for any liabilities of the business.
Therefore, examine your assets prior to going into business and consult with an attorney if you feel you need liability protection.
Q: Can I pay Social Security tax voluntarily if I am unemployed or my business income is very low? I’m concerned that my Social Security benefits will be reduced later if I don’t.
A: You cannot pay extra money into your Social Security account to increase future benefits. Social Security is based on the level of earnings in your 35 highest earning working years. It is therefore possible that a period of unemployment or low earnings will not have an impact on your future benefits.
Q: Are the personal state and local taxes I pay deductible?
A: Yes. Personal state and local taxes are deductible on Schedule A in the year the taxes were actually paid. It does not matter how the taxes are paid, whether through withholding, estimated tax payments or payments for prior year returns. Penalties and interest are not, however, deductible. LL
Everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax professional.
Written by Howard Abrams of PBS Tax & Bookkeeping Service. Contributions were made by Shasta May, director of business development for PBS. For more information, call 1-800-697-5153 or visit pbstax.com.