Tax deduction question

[golfgal]

With my new job I can take your typical tax deductions for business owners, auto expenses, office expenses, etc. Using round numbers say we paid in $20,000 in taxes out of DH's paycheck. If our regular deductions (house, kids, etc) and my business deductions come to say $25,000, do we get a $5000 refund? Basically I am trying to figure out if I need to take the time to figure out how much we spent in utilities, etc. this year to deduct my home office expenses. With our rental property and my business deductions we will be at an effective tax rate at or very close to zero already. If our effective tax rate is say -10%, do we get that 10% back?

 

[Nette]

The deductions do not come off what you've already paid in taxes, but off of your total income that is taxable. So if you made $100,000 and you can deduct $25,000 then you still have to pay taxes on $75,000 (whatever that might be)

 

[Loverly]

For a couple of years we could deduct the expense of DH's office in our home

Seriously in the scheme of things that 100 square foot office in our 2200 square foot house -the deduction was minute. and then it's a percentage of your income over a certain $$ has to be subtracted first.

 

[Loverly]

If our regular deductions (house, kids, etc) and my business deductions come to say $25,000, do we get a $5000 refund? ?

I'm also curious how you would get $25,000 in deductions! Is your interest on your mortgage that high?

 

[golfgal]

I'm also curious how you would get $25,000 in deductions! Is your interest on your mortgage that high?

Those are made up numbers but probably close with our rental properties, interest and property taxes on the houses, business deductions, 3 kids. It is probably more then that even now that I think about it. I think the standard deduction is $11,000 or something like that.

 

[Loverly]

Also the auto deduction is complicated. You have to keep records of how much mileage was personal and how much was business. DH turned in a mileage to his company every week, so it made it a little easier to figure at the end of the year.

Now the new job simply pay him a flat rate-so we come out ahead $$ and i don't have to figure all that complicated stuff anymore

If you alsio have rent houses etc, I'd get a CPA

 

[golfgal]

Also the auto deduction is complicated. You have to keep records of how much mileage was personal and how much was business. DH turned in a mileage to his company every week, so it made it a little easier to figure at the end of the year.

Now the new job simply pay him a flat rate-so we come out ahead $$ and i don't have to figure all that complicated stuff anymore

If you alsio have rent houses etc, I'd get a CPA

I have a CPA, my question is if it is worth pulling out all my utility bills from the past year, figuring out how much we paid, then the percentage of that for my home office, etc. when I already have enough deductions to get our taxable income down to zero. If my taxable income is a negative number, do you get that back or does it just stop at zero? We have a 50 page packet from our CPA to fill in all this information but I don't want to spend unnecessary time figuring out utility costs, etc. if I don't have to.

 

[ameraumi]

In some ways, yes pulling out the bills will help. How much, just depends on your time/space percentage. I am able to deduct over 30% of our utility bills due to my home business (home daycare). But I use the majority of my house for daycare unlike most home offices.

In my eyes no deduction is too small.

 

[Loverly]

when I already have enough deductions to get our taxable income down to zero. If my taxable income is a negative number, do you get that back or does it just stop at zero? .

Never had that problem

However if this year's filing is a huge difference from last year's I'd worry about getting audited-that has happened to us once

 

[MrsToad]

Our facts: We file a joint return. My DH gets a regular paycheck with a W2 at the end of the year. I am self-employed and file a schedule C for my income and expenses as a consultant. We have extra taxes withheld from DH's paycheck to cover any taxes I may owe on my earnings.

The way I understand it is that even if my own business expenses come out to more than my gross receipts (unlikely for me), my schedule C earnings/loss would transfer as a zero on the 1040. So, we would still owe tax on whatever DH's own earnings are - my loss would not negate his income or any of our regular interest or dividend income (I know, that will be low this year!). We would only get a refund if his withheld taxes exceeded what his earnings and our normal deductions (state and town taxes, medical expenses if over 7.5%, mortgage interest, etc.) would calculate our tax obligation to be (maybe with the exception of a deduction for medical insurance premiums for a self-employeed person?).

If I understand incorrectly, please someone let me know! Thanks.

 

[golfgal]

Our facts: We file a joint return. My DH gets a regular paycheck with a W2 at the end of the year. I am self-employed and file a schedule C for my income and expenses as a consultant. We have extra taxes withheld from DH's paycheck to cover any taxes I may owe on my earnings.

The way I understand it is that even if my own business expenses come out to more than my gross receipts (unlikely for me), my schedule C earnings/loss would transfer as a zero on the 1040. So, we would still owe tax on whatever DH's own earnings are - my loss would not negate his income or any of our regular interest or dividend income (I know, that will be low this year!). We would only get a refund if his withheld taxes exceeded what his earnings and our normal deductions (state and town taxes, medical expenses if over 7.5%, mortgage interest, etc.) would calculate our tax obligation to be (maybe with the exception of a deduction for medical insurance premiums for a self-employeed person?).

If I understand incorrectly, please someone let me know! Thanks.

This is exactly my question, how do you then show a loss on the business if you can only report it to zero? Right now I have about a $3000 "loss" on my business but I can only put in zero? If I can only put zero then it isn't worth my time to figure out the utilities, etc. for our taxes.

 

[wall*e2008]

I have a CPA, my question is if it is worth pulling out all my utility bills from the past year, figuring out how much we paid, then the percentage of that for my home office, etc. when I already have enough deductions to get our taxable income down to zero. If my taxable income is a negative number, do you get that back or does it just stop at zero? We have a 50 page packet from our CPA to fill in all this information but I don't want to spend unnecessary time figuring out utility costs, etc. if I don't have to.

You do know that if you take the home office deduction that when you sell your home you have to take the profit on that part them. I could take the deduction but I chose not to, since it is so small and the profit in the future may negate all I get.

As a PP stated your business expenses come off your income not the taxes your paid.

 

[Northstar]

Just look at the 1040 where you deduct your deductions, then your exemptions, to find your taxable income on line 43.
It says, "if line 42 (your exemptions) is more than line 41 (your income after you subtract your deductions), enter -0-"

So if you already can get your taxable income to zero without taking the deductions for your home office, it's not worth it to do the bookkeeping and math.

 

[Think-tink]

It is possible that the business loss may be carried forward to offset future business earnings (check with your CPA). If they do carry forward then you need to decide if the carry forward loss amount for the utilities is worth it.

 

[golfgal]

Just look at the 1040 where you deduct your deductions, then your exemptions, to find your taxable income on line 43.
It says, "if line 42 (your exemptions) is more than line 41 (your income after you subtract your deductions), enter -0-"


So if you already can get your taxable income to zero without taking the deductions for your home office, it's not worth it to do the bookkeeping and math.

Ok, so say Dh makes 100,000 and I make 50,000, my business loss is $53,000 does that extra $3000 just go in as zero on my portion of the taxes or does it come off our total $150,000-so our net would be $97,000 or does it stay at $100,000 since it is my business, not DH's income? I know you take the taxes off your income.

It is possible that the business loss may be carried forward to offset future business earnings (check with your CPA). If they do carry forward then you need to decide if the carry forward loss amount for the utilities is worth it.

Ok, so it might be worth having that figure handy for the accountant depending on what we really net out this year.

 

[Mrs.Toad]

Ok, so say Dh makes 100,000 and I make 50,000, my business loss is $53,000 does that extra $3000 just go in as zero on my portion of the taxes or does it come off our total $150,000-so our net would be $97,000 or does it stay at $100,000 since it is my business, not DH's income? I know you take the taxes off your income.

OK, it's been a few years since I did personal income taxes for a living, but IIRC, your $3K Schedule C loss is deducted against your dh's salary, so your AGI (before your personal deductions) is $97K. There used to be an issue with a Schedule C business having losses year after year, that it was deemed a hobby and so no longer deductible until a year when you could take it against Schedule C income, but that may have changed.

My advice would be to ask your CPA. He/she knows your situation and would be better able to tell you whether the additional expenses might benefit you.

Good luck!