Office in home - Sch C AND Sch A - how?

[Catherine]

#1. Happy Memorial Day (Decoration Day) -- thank a veteran -- specifically THANK YOU to all on this board who have served!!, and read the Gettysburg Address. "...It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced."

#2. Under the heading of "these new regulations will fundamentally alter the way we get around them", Massachusetts now requires its Schedule C contract workers to incorporate (so they they don't run afoul of MA's own very strict who's-an-employee standards). So I have a couple of clients who have worked for MA for years as independent contractors on Schedule C, taking office in home deductions. Mid-2010 both incorporated, and still work out of their home offices. And I need to split the office in home deductions between self-employed working at home and employed working at home for their sole-owner corporations.

I can't figure out how, in ATX, to a ) STOP the 8829 from calculating whole-year depreciation for the Schedule C (since some of it goes to the Sch A worksheet) and b ) get the deductible mortgage interest/RE taxes to be correct without an override - so should the override preferentially be on the worksheet or the form itself, or does it not matter?

Also, on the Sch A home office worksheet line 33, I need to use the date the home office was first used (before 2010) or the deprecation number is way off (as is the applied percentage). Anyone have a clue as to what's going on there?

This is one spot where doing it by hand on paper would be easier.

TIA,

Catherine

[joanmcq]

The mortage interest & taxes should be able to be manually entered for the 8829 without using the 'bring it over from the schedule A' checkboxes. I think you would have to convert the 8829 office to personal and set up a new one starting midyear for the 2106. And then set them up with an accountable plan so their corps can reimburse them for the home offices, mileage, M&E, etc and do away with the 2106 altogether.

[Margaret CPA in OH]

I have been taking home office for several years using my entire former living room. Last year one part time employee retired as of June 30 so I literally downsized my office in half. For 2010, I entered 1/12 space for home office instead of 1/8 and for 2011 until I retire, it will be 1/16. I did not have to override anything.

I am always leery of the home office of an employee of a company, too, depending on S or C. I think the acccountable reimbursement plan Joan has suggested is the better option.

[jainen]

>> the home office of an employee of a company<<

Generally, an employee can not deduct expenses for the corporation's use of the employee's home. It should be deducted on the corporate return, so an accountable plan is the normal method.

[joanmcq]

Well it kinda depends on the corp and employee. Closely held corp/employee? Set up an accountable plan. I have had several clients whose home offices were legit; worked remotely for large corporations. I have no problem taking these home offices.

[Margaret CPA in OH]

My wariness is when there is a sole S-corp shareholder with a home office. Obviously the sh is an employee and there can be issues with the home office expenses and deductions. I have no problem with a home office for an employee in general. But when one of my S-corp sh/employees wanted everything deducted, well, my research would not suffice so he toddled along to another firm - okay by me!

[jainen]

>>I have no problem with a home office for an employee in general.<<

Maybe you don't, but Section 280A(c )(6) of the tax code sure does. If the corporation reimburses your client or pays higher wages or extra in any way because the employee uses his home office, he can't deduct anything, period. And the income is still taxable, unless it's an accountable plan! So why not?

[joanmcq]

jainen, I am quite familiar with the restrictions Sec 280(a) puts on employee home offices. I determine all of the 'convenience of the employer', what is or is not reimbursed, etc. And since I am in Sacramento, usually for example, Bay area companies can actually pay the employees less to work from home, not more, since the employers are not renting expensive office space in SF and the cost of living is less in Sacramento.

The accountable plan is most often used for closely held corps, not big public ones.

[OldJack]

The accountable plan is most often used for closely held corps, not big public ones.

You got to be kidding to think big public corps don't reimburse there employees and that is not under an accountable plan.

[jainen]

>>I determine all of the 'convenience of the employer', what is or is not reimbursed, etc.<<

That's not the issue. Does the corporation pay anything related to the property or not? You can't avoid 280A by calling it a "reimbursement" unless you use an accountable plan.

>>Bay area companies can actually pay the employees less to work from home, not more, since the employers are not renting expensive office space in SF<<

How's that again? The employers get bigger profits because they force their own employees to subsidize them? Well, okay, if that is true then the corporation is not renting so the employee can take their deductions at 15 or 25 cents on the dollar, subject to 2% AGI. Under an accountable plan, they could exclude 100% without limit.

[joanmcq]

I'm not saying its the best deal for the employee, but I have several clients that DO work from home and some things are paid for, like internet and office supplies, and some are not, like utilities, depreciation. etc. The company gets a benefit by being able to hire from a wide area, and the employee doesn't have to pull up stakes and move to the Bay area for a job. We don't deduct internet and we do deduct depreciation, utilites etc.

I had another who was doing sales work. The company wasn't going to set up an office for one employee in a region.