One CPA says yes, another CPA says no...

Discussion in 'Business Operations' started by khutch, Jan 29, 2011.

  1. khutch

    khutch LawnSite Senior Member
    Posts: 495

    I have two clients who are CPA's. They both at some point mentioned they don't like to give "free" advice, but I posed this question to them and said "just give me a thumbs up or thumbs down". Easy question, just figured they would probably agree and there would be my answer. Question is: Can I deduct the taxes, mortgage interest and utilities for the square footage of my garage which I use year round as storage and workshop? Oddly, one gave me the thumbs up, the other thumbs down...???? I was figuring on a thumbs up....
    BTW, My company is an S Corp.
    Anyone have advice on this???
     
  2. billslawn89

    billslawn89 LawnSite Bronze Member
    Posts: 1,364

  3. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,596

    280A(c)(6) of the tax code which states that a rental of a dwelling unit by the taxpayer to his employer (your S corp) during any period in which the taxpayer uses the dwelling unit, then ¶1 and ¶3 can't be used to allow office-in-home expenses. ¶1 is the "principal place of business; used by patients, clients and the separate structure. ¶3 is the dwelling unit exception.

    Hence, the only exception to the general rule about not allowing deductions for the office-in-the-home is for storage use and day care services.

    Feldman v. Commissioner which caused the (c)(6) rule. I need to read case but I think at this point you will need a accountable plan where you rent the building to the S-Corp and claim rental income and expenses on a personal schedule E.
     
  4. zturncutter

    zturncutter LawnSite Bronze Member
    Posts: 1,308

    My CPA's take is that while it is doable it is not usually advisable. It is one of those deductions the IRS usually will take a look at to audit. So I guess they are both right while giving two different answers.
     
  5. thats the trouble with the tax code, there's too much interpretation of it.
     
  6. jc1

    jc1 LawnSite Bronze Member
    Posts: 1,570

    The way my accountant explained it to me is this. You can claim it as an expense but is it worth it. If you claim the expense and then sell your house making a profit over your purchase price. You are then taxed on the percent of profit that was previuosly claimed as a deduction. Where if you dont claim the expense it would not be taxable income. It's more complex than a thumbs up or down question.
     
  7. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,596

    Your accountant is correct. In essence, you will have to recapture the amount previously claimed as depreciation. Additionally, the structure will have to be used exclusively for business. Hence, you cannot "openly" use it to work on your personal vehicles or store personal items. Many office in home deductions are lost when the IRS discovers the kids work on their homework (as an example) in the home office.
     
  8. AI Inc

    AI Inc LawnSite Fanatic
    Posts: 25,232

    So professor, is it worth it to take the write off as you then have a higher personal income if you are renting it to yourself?
     
  9. khutch

    khutch LawnSite Senior Member
    Posts: 495


    Yea, that is why I said just give me a thumbs up or thumbs down - both of these guys made it clear they did not want to talk tax law with me - can't blame 'em really.
    I guess it is true what one CPA told me, "Anything can be written off until you are audited."
    Think I'm going to pass on this deduction, although it sure seems worth it granted they would have to come back after all those years later when you sell you house for profit, IF you sell your house for a profit.
    BTW, isn't there a limitation on the number of years you can be audited?
    Taking this deduction doesn't seem to fall under fraud or intentional non-payment of taxes which I thought were the only things that did not have a statue of limitations.
     
  10. fl-landscapes

    fl-landscapes LawnSite Silver Member
    Posts: 2,542

    same thing my accountant told me.....zero sum game and not worth it. Oh and those customers who dont give "free advice"..be sure the next time they ask you why the azaleas arent blooming you tell them the pH is off.....and send an invoice for your expert advice. Dicks!
     

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