Huddleston Tax Weekly

If you are small business owner and use part of your home exclusively for business then you may be able to take a deduction for your home office.  In order to be able to take the deduction then you must you the “home office” portion of your home:

• Exclusively and regularly as your principal place of business, as a place to meet with clients or customers in the normal course of your business, or in connection with your business where there is a separate structure not attached to the home; or
• On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

If you meet this test then you may take as a deduction the business portion of any real estate taxes, mortgage interest, utilities, insurance, rent, painting, repairs, and improvements, and depreciation.

Also, if you are an employee who as a home office then you can only take this deduction if the office is used exclusively for business at the convience of the employer and that portion of your home is not rented by your employer.

If you have a den in your house that you use for business and your family also uses for watching TV, using the computer, or doing their own work, then you do not have an office that can be deducted.  The office must be exclusively used for business - meaning no other activities can be performed there.

It is always best to seek the advice of a tax professional before deciding whether or not you qualify for the home office deduction.

If you have a used car you want to donate to a charity and are wondering if you can deduct the donation on your tax return, then here are the steps you need to take.

First, make sure the charity you want to donate to is a qualified organization.  You will need to make sure that they are 501(c)(3) and can do so by calling the IRS at 877-829-5500 if you have any doubts.

You also must itemize deductions on your personal tax return by filing Schedule A.  If you are not a Schedule A filer, but instead take the Standard Deduction, then you cannot deduct the donation of the car.

Next comes the amount you are able to deduct for the donation.  This depends on what the charity plans to do with the vehicle.  If the charity sells the vehicle (as they generally do) then your deduction is limited to the gross proceeds of the sale.  So if you donate your car and the charity sells it for $500, then that is your deduction.  This is the case even if you think the fair market value of the car is higher.  You will also need to get a written statement from the charity with your information on it and a statement saying they sold the car and how much they sold it for.  This is true for any car that is sold for more than $500.

If your donation is worth more than $5000 then a written appraisel will be necessary and it will need to be attached to your tax return.

If you have any questions about donating an automobile to charity then it is best to consult your tax advisor for advice on your particular situation.

When keeping track of meals for your business as an expense, keep in mind that some meals are only 50% deductible while others are deductible at 100%. 

Meals that are 50% deductible:

• Meals for business meetings of employees, stockholders, etc. 
• Meals during business travel. 
• Meals at conventions and seminars
• Meals with clients and customers
• Meals that are related to employee travel that are reimbursed to the employee at 100% are still only 50% deductible

Meals that are 100% deductible:

• Company parties
• Snacks for the office like coffee and donuts
• Food used in promotion that is made available to the public for free
• Meals provided to employees in the office for the convenience of the employer (provided it is given to more than half of the employees).  This works if you want to give employees dinner to keep them working later

If you have questions regarding whether your meal expense is 50% or 100% deductible it is always best to consult your tax advisor.  Always remember to keep adequate records of your meals by keeping things such as the reciepts.

Real Estate Professionals have special rules for reporting and deducting rental income and losses on their personal tax returns (form 1040).  If you are a real estate professional then rental activities that you materially participate in during the year are not passive activities.  This means that any losses are not limited by the passive activities rules.

Qualifications to be a Real Estate Professional:

1. More than half of the personal services you performed in all trades or businesses during the year were performed in real propertry businesses in which you materially participated.
2. You performed more than 750 hours of services during the year in real estate businesses in which you materially participated.

If you qualify to be considered a Real Estate Professional for tax purposes then you have the option of choosing to treat all of your real estate interests as one activity.  Once you make this choice, it is binding for the year you make it and any later years that you qualify as a real estate professional.

The main benefit of delaring yourself a real estate professional on your tax return is so that your rental losses are not limited.  This way if you have rental losses of $40,000, you can take the entire loss and not be limited to the $25,000 passive activity loss rules.

Before preparing your tax return as if you are a Real Estate Professional, it is always wise to consult your tax accountant to make sure your tax return will be correctly prepared.