Small Business FAQs | October 2011

Question:   If I, a sole proprietor, pay personal expenses out of my business bank account, should I count the money used as part of my income? Can I write these expenses off?
  • You would include the money used to pay personal expenses in your business income when it was earned by your business.

  • You would not write off these expenses because they are not ordinary and necessary costs of carrying on your trade or business.

  • Personal, living, or family expenses which are not specifically provided by law are not deductible.

  • It is recommended that you not mix business and personal accounts as this makes it easier to keep records.

Question:   Must a partnership or corporation file a tax form even though it had no income for the year?
Answer:   A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.A domestic corporation must file an income tax form whether it has taxable income or not.


Question:   Can a husband and wife operate a business as a sole proprietorship or do they need to be a partnership?
Answer:   Unless a business meets the requirements listed below to be a qualified joint venture, a sole proprietorship must be solely owned by one spouse, and the other spouse can work in the business as an employee. A business jointly owned and operated by a husband and wife is a partnership unless the spouses elect to be treated as a Qualified Joint Venture or, in a community property state,Rev. Proc. 2002-69 applies.
A married couple who jointly own and operate a trade or business may choose for each spouse to be treated as a sole proprietor by electing to file as a “qualified joint venture.” Requirements for a qualified joint venture:
• The only members in the joint venture are a husband and wife who file a joint tax return,
• The trade or business is owned and operated by the spouses as co-owners (and not in the name of a state law entity such as an LLC or LLP),
• The husband and wife must each materially participate in the trade or business, and
• Both spouses must elect qualified joint venture status on Form 1040 by dividing the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture and each spouse filing with the Form 1040 a separate Schedule C, C-EZ, or For Form 4835 accordingly, and, if required, a separate Schedule SE to pay self-employment tax.
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Is Your Home Office a Tax Deduction?

Many individuals have home offices, but are unclear on whether or not they can claim these home offices as tax deductions. The IRS explicitly states that home offices can be deducted from your taxes. However, they are also very clear that this home office can only be used for work-related purposes. It must also be used regularly for work-related purposes (meaning it cannot be a spare room that you happen to do some work in now and then).

Is your home office suitable for an IRS deduction?

If so, then it is worth exploring how to claim the home office on your taxes. Self-employed individuals can do this when they file their tax return. If you are an employee of a business it is necessary in case of an audit to be able to prove that your home office is for the sole benefit of your employer.

Necessary Information When Claiming Home Office Deduction

There are a few necessary steps when claiming your home office. These steps include:

   - Providing the area of the room that is used exclusively for business.
   - Providing the total area of your home.
   - Calculating the percentage of your home which your home office takes up.

You will also need to have on hand your mortgage payment, household expenses, and other similar expenses.

Use Caution When Claiming a Home Office Deduction

You should absolutely claim any eligible home office deductions. Doing so can significantly lower your tax liabilities. Be sure to keep all receipts and other relevant information on hand just in case.

Call us with any questions about claiming your home office as a tax deduction. We’ll be happy to take a look at your situation and see what we can do save you more money.

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