Clarity on Tax
#1
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Joined: Aug 2013
Posts: 8
Clarity on Tax
Hi,
While my family and I are weighing up a relocation move to the US from the UK with my company via an E2, I am trying to understand business expense tax deduction.
In the UK, I work from home in a dedicated room/office and claim the square footage of this room as a taxable expense i.e. 5 rooms, 1 used as an office = 1/5 of the rent; 20% of this 1/5 is reduced against my tax.
As my position will be the same in the US, can anyone advise if the process is the same or different, with examples ? i.e. is it the same as the UK method and I save the rate based upon the tax band I am playing in the US ?
Also, this is method the same for food while traveling i.e. do I claim the sales tax back of the whole amount against my tax ?
Thanks!
While my family and I are weighing up a relocation move to the US from the UK with my company via an E2, I am trying to understand business expense tax deduction.
In the UK, I work from home in a dedicated room/office and claim the square footage of this room as a taxable expense i.e. 5 rooms, 1 used as an office = 1/5 of the rent; 20% of this 1/5 is reduced against my tax.
As my position will be the same in the US, can anyone advise if the process is the same or different, with examples ? i.e. is it the same as the UK method and I save the rate based upon the tax band I am playing in the US ?
Also, this is method the same for food while traveling i.e. do I claim the sales tax back of the whole amount against my tax ?
Thanks!
#2
Re: Clarity on Tax
Hi,
While my family and I are weighing up a relocation move to the US from the UK with my company via an E2, I am trying to understand business expense tax deduction.
In the UK, I work from home in a dedicated room/office and claim the square footage of this room as a taxable expense i.e. 5 rooms, 1 used as an office = 1/5 of the rent; 20% of this 1/5 is reduced against my tax.
As my position will be the same in the US, can anyone advise if the process is the same or different, with examples ? i.e. is it the same as the UK method and I save the rate based upon the tax band I am playing in the US ?
Also, this is method the same for food while traveling i.e. do I claim the sales tax back of the whole amount against my tax ?
Thanks!
While my family and I are weighing up a relocation move to the US from the UK with my company via an E2, I am trying to understand business expense tax deduction.
In the UK, I work from home in a dedicated room/office and claim the square footage of this room as a taxable expense i.e. 5 rooms, 1 used as an office = 1/5 of the rent; 20% of this 1/5 is reduced against my tax.
As my position will be the same in the US, can anyone advise if the process is the same or different, with examples ? i.e. is it the same as the UK method and I save the rate based upon the tax band I am playing in the US ?
Also, this is method the same for food while traveling i.e. do I claim the sales tax back of the whole amount against my tax ?
Thanks!
http://www.irs.gov/uac/Schedule-C-(F...-From-Business
Most people will use a tax preparation program which prompts you about expenses which fills in forms and calculates income.
Since the 2012 tax season is over, the 2012 edition of Turbo tax for Home and Business is discounted by about 75% to $25 and you may want to purchase that and run some numbers and see how everything would work if you had certain expenses and income. Doing the forms manually is just too complicated.
http://www.amazon.com/gp/product/B00...f_rd_i=3003491
I find it so much easier to use a tax preparation program and then play with numbers to determine the best way to limit taxes owed.
Last edited by Michael; Sep 1st 2013 at 2:34 pm.
#3
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Joined: Aug 2013
Posts: 8
Re: Clarity on Tax
Greatly appreciate the direction and yes, for the sake of it, I will download turbo tax as its in my interest.
#4
Re: Clarity on Tax
Be very careful claiming a home office. Strictly speaking it should be a dedicated space only used for office. I would also suggest that 20% should be considered an upper limit, more than that may raise suspicions.
#5
Re: Clarity on Tax
It may be an urban myth, but I've always been told by accountants that the home office deduction is a red flag for the IRS. Probably important to follow the rules to the letter.
The last time I looked into doing it, I was dissuaded by the exclusive use rule. The example given was this: if you use the computer in that office to book a vacation or a personal email, you would invalidate the tax benefit.
Lots of info here:
http://www.irs.gov/Businesses/Small-...fice-Deduction
The last time I looked into doing it, I was dissuaded by the exclusive use rule. The example given was this: if you use the computer in that office to book a vacation or a personal email, you would invalidate the tax benefit.
Lots of info here:
http://www.irs.gov/Businesses/Small-...fice-Deduction
#6
Re: Clarity on Tax
It may be an urban myth, but I've always been told by accountants that the home office deduction is a red flag for the IRS. Probably important to follow the rules to the letter.
The last time I looked into doing it, I was dissuaded by the exclusive use rule. The example given was this: if you use the computer in that office to book a vacation or a personal email, you would invalidate the tax benefit.
Lots of info here:
http://www.irs.gov/Businesses/Small-...fice-Deduction
The last time I looked into doing it, I was dissuaded by the exclusive use rule. The example given was this: if you use the computer in that office to book a vacation or a personal email, you would invalidate the tax benefit.
Lots of info here:
http://www.irs.gov/Businesses/Small-...fice-Deduction
#7
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Joined: Aug 2013
Posts: 8
Re: Clarity on Tax
I feel the above advice given may be based on misdirection from myself. I will not be running a business from my rented property but working from home to fulfill my role for my employer who's office in based to far for me to travel too. As I will be traveling 2 days of each week to meet with clients, and given the distance of my company's head office from my home, working from home makes more sense.
#8
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Joined: Aug 2013
Posts: 8
Re: Clarity on Tax
So, based upon the response from Michael above, I can write off the full amount of the dedicated office room I use in my home against my tax ?
#9
Re: Clarity on Tax
I think it's all the same to the IRS.
My one recommendation would be to get an accountant. Doesn't cost much and will help you navigate the rules.
It's pretty normal to have an accountant for your personal taxes in the US due to the bewildering tax code :-)
My one recommendation would be to get an accountant. Doesn't cost much and will help you navigate the rules.
It's pretty normal to have an accountant for your personal taxes in the US due to the bewildering tax code :-)
I feel the above advice given may be based on misdirection from myself. I will not be running a business from my rented property but working from home to fulfill my role for my employer who's office in based to far for me to travel too. As I will be traveling 2 days of each week to meet with clients, and given the distance of my company's head office from my home, working from home makes more sense.
#10
Re: Clarity on Tax
Especially if you are running a business from home. There are clever ways of getting the most out of the deductions.
#11
Re: Clarity on Tax
It supposedly does raise a red flag but if it is a legitimate office where all or most of your income comes from that business and you show a reasonable profit, it is generally accepted. Generally the people that have the most problems are people that have a day job or no or little profit after expenses.
#12
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Joined: Mar 2008
Location: Santa Cruz, CA
Posts: 4,913
Re: Clarity on Tax
The fact that you are an employee means that there are a few more issues that need to be considered.
Read this and see if you think that you qualify.
One possible stumbling block is:
Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed earlier plus:
Your business use must be for the convenience of your employer, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.
Your business use must be for the convenience of your employer, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.
#13
Re: Clarity on Tax
You are not running a business from home but are only using it for your convenience. Schedule C does not apply since that is the form for Profit or Loss from Business (Sole Proprietorship) and you aren't a Sole Proprietorship but instead an employee of another company. Usually someone such as a real estate agent is a contractor (Sole Proprietorship) and can then use Schedule C.
Since you likely can't use Schedule C, office expenses will likely have to be taken on Schedule A as itemized deductions which has limitations and deductibles. Even car expenses going to your office normally can't be written off since that is your real workplace. If you have meal or hotel business expenses reimbursed by your employer, then that is not normally taxable but if they are not reimbursed, then there are limitations.
The few exceptions where I've seen employees able to write off office space in their home is when they have an level of expertise that requires them to travel from location to location and didn't have an office anywhere near where she lived (i.e. we had an employee with a PHD in encryption that traveled to many company facilities to help employees understand security requirements of how code had to be implemented).
Last edited by Michael; Sep 1st 2013 at 6:37 pm.