Biz use of home by LLC

[JJStephens]

I'm having a 7:30pm on April 11 brain freeze. Someone please help thaw me out!

Married couple jointly own a LLC. They regularly & exclusively use approx 10% of home as office

space. Am I better off doing a reimbursement arrangement for office-in-home expenses or have them deduct the expenses on their personal return? I ran into this once before but it was years ago and right now my brain synapses aren't accessing data that far back.

[Lion EA]

Do they have an accountable expense plan? Does their operating agreement require them to use their own property without reimbursement?

[kcjenkins]

Having the business reimburse them is better, because it lowers the net income of the business which is subject to SE taxes. Deducting it on their 1040 removes that benefit.

[michaelmars]

Having the business reimburse them is better, because it lowers the net income of the business which is subject to SE taxes. Deducting it on their 1040 removes that benefit.

if they were to take it personally, it would be unreimbursed partner exp which would reduce se tax too. [not saying this is the proper way to go with this]

[mcb39]

I was wondering about that UPE deduction myself in the case of a Partnership that I am doing wherein one partner is on the road driving a Semi and the other Partner who invested all of her money in the enterprise; has an office in her home and does all of the bookwork. Because she drew the money out of her IRA (prematurely) she really needs every deduction she can get. I know it is a stretch, but am glad to see that someone (Michael) is thinking along the same line.

[Lion EA]

What does the operating agreement say?

[kcjenkins]

You are right, as UPE. I was just thinking of it being on the A. Clearly I am not getting enough sleep!

[JJStephens]

Thanks for all the posts. To the question about an operating agreement, I don't know the answer to that question. Certainly that would settle the issue of it being required by the employer, but couldn't they also do that independently (i.e., outside the OA)?

[michaelmars]

i would love to see an operating agreement thats properly done or even attempted to be done. Especially since the 2 members are husband and wife, i seriously doubt an agreement exists. and of course that agreement can always be amended to say anything they want and once you ask them about it, i am sure they will find one dated in 2010 allowing whatever saves them the most taxes this year.

[Lion EA]

But, you do have to tell them the rules. Don't wait for them to divorce and have dueling lawyers say you did it wrong!

[michaelmars]

lawyers need to make a living too!

[mcb39]

My Partners are not married. However, have spoken to both of them personally and they do have an agreement with each other; they claim written. They are going to do whatever I tell them to do so have to be really careful with this one. To begin with, I told them they had to file a Partnership return in order to protect both of them, but primarily her who has a major financial investment here. Not to mention penalties for early withdrawal. Then onward to the personal returns. She is the big loser. Of course, first year Partnership, they have a reasonable loss. That is the only income (loss) he will have. She takes the brunt of it with the $110,000 IRS withdrawal. They both understand that NOW, but I have no clue what they were thinking when they did it. He is a long-time client of mine, this is my first year with her. I wish they would have asked. I am going to give her the UPE for the home office as it is solely her home and she is definitely in charge of all of the financials and the bookkeeping.

[Lion EA]

This is one of those times when what's best for her might not be best for him. Tough to advise them both.

[mcb39]

It won't hurt him as his only income will be his share of the Partnership loss, which will create a NOL. He knows what a sacrifice she made for him to make his dream of owning his own Semi come true. Also, they live together but are not married which is why I feel the need to protect her. She will still owe plenty.