Author Topic: TAX Questions (Read 8925 times)

MarkRyanDesigns · « **on:** August 20, 2012, 10:32 »

does anyone know:

how much do you need to make to be able to write-off your home office?

if you are making money through one of the microsites are you a employee of the microsite or are they paying to my freelance company?

EmberMike · « **Reply #1 on:** August 20, 2012, 10:37 »

Assuming you're talking about US taxes, right?

I don't think there is a minimum income threshold for writing off your home office. I've been doing it for years, even when I wasn't making a whole lot or showing a loss.

Microstock income is similar to freelance income. We're not employees. Several microstock companies issue 1099 forms just like you'd get from companies that pay you as a freelance designer or something similar. In all cases, you just report the income the same as you would if some local company was writing you a check for services rendered.

Sean Locke Photography · « **Reply #2 on:** August 20, 2012, 10:39 »

Quote from: MarkRyanDesigns on August 20, 2012, 10:32

does anyone know:

how much do you need to make to be able to write-off your home office?

if you are making money through one of the microsites are you a employee of the microsite or are they paying to my freelance company?

Depends on your country. Assuming US...

There is no "minimum" afaik, to use a home office deduction.

You are certainly not an employee of the agency. You receive royalties, which go in different income areas depending on how you file.

ShadySue · « **Reply #3 on:** August 20, 2012, 10:44 »

Quote from: MarkRyanDesigns on August 20, 2012, 10:32

does anyone know:

how much do you need to make to be able to write-off your home office?

if you are making money through one of the microsites are you a employee of the microsite or are they paying to my freelance company?

If in the UK, I can't advise strongly enough finding and using a good accountant.

MarkRyanDesigns · « **Reply #4 on:** August 20, 2012, 10:50 »

Sorry I should have specified the country. It's Canada (Ontario)

kingjon · « **Reply #5 on:** August 20, 2012, 11:31 »

Ah yes, Canada. I'm also in Ontario (near Ottawa). I'm not a tax expert but this is based on my own experience with microstock income for about 5 years.

I'm not aware of any income limitations for home office. I certainly use that deduction (I have a small home studio as well). As has been mentioned already, you're not an employee but are getting paid royalties. Since you are in Canada, you're probably receiving a T5 from IS. I've reported here in the past limitations in the tax software (Turbotax and Quicktax before it) related to t5 royalties. The software adds the income to your regular salary by default. If this is your issue, send me a site mail and I'll describe what I do to fix the problem.

Regards,

John

Pixart · « **Reply #6 on:** August 20, 2012, 14:00 »

Also be aware that Istock will send you a T- (uh... is it a T-5? ). And you cannot rely on them to send it on time. And with my conversation with RevCan, they don't have to send it by any deadline. Last year I included Istock under my self-employment earnings under a "stock revenue" category in my books - didn't submit the T-5 - which I hadn't received - but months later I rec'd an adjustment from RevCan and they wanted taxes and interest for Istock earnings (triggered an adjustment to my husbands also and wanted more taxes from him). If you are close to filing you can declare your Istock revenue by the deadline and later send them a "T1 Adjustment" form when you receive the docs from Istock so they don't send you a bill.

So far Canstock has not sent T-5's but perhaps my earnings have never met the minimum threshold to require them to prepare one.

You can generally claim the office if it is used exclusively for the business. Not for storage or a playroom when you are not working. You can deduct a portion of your household expenses also, electricity, telephone, water. It seems to me there are some rules against the Internet if it is not dedicated to the office, but you can check that.

MarkRyanDesigns · « **Reply #7 on:** August 20, 2012, 14:25 »

Do you know how much you can claim when updating software and computers? I am on cs3 and desperately need an upgrade, and would like a shiny new computer.

louoates · « **Reply #8 on:** August 20, 2012, 15:18 »

If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead. An audit becomes more likely the more the expense end of it, including equipment, outweighs the income end. I've come to the conclusion that claiming that deduction in the US is not worth the hassle.
I don't know what the current regulations are but it used to be that you need to maintain more records with that deduction as the amounts over the years must be "reclaimed" as offsets when you sell the house and may thus push you into owing more taxes on that transaction.
If you are in business you must have an accountant who can explain all these wrinkles. The multiple audits I've been through in several of my businesses have caused me to be super-conservative in such matters.

lisafx · « **Reply #9 on:** August 20, 2012, 16:43 »

Quote from: louoates on August 20, 2012, 15:18

If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead.

This used to be the conventional wisdom, but according to my CPA that is no longer the case. So many people are working from home the past decade or so that it is now very commonplace to use the home office deduction. If you are legitimately using a home office for your business there is no problem claiming it. Worst case scenario, even if you were to be audited, as long as it meets the rules you should be okay.

Pixart · « **Reply #10 on:** August 20, 2012, 17:19 »

Quote from: MarkRyanDesigns on August 20, 2012, 14:25

Do you know how much you can claim when updating software and computers? I am on cs3 and desperately need an upgrade, and would like a shiny new computer.

My computers/printers/gear are capitalized over a period of time. You may also have losses carried forward. This would be a good page for you to seek info re sole proprietorship writeoffs:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html

louoates · « **Reply #11 on:** August 20, 2012, 17:30 »

Quote from: lisafx on August 20, 2012, 16:43

Quote from: louoates on August 20, 2012, 15:18
If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead.

This used to be the conventional wisdom, but according to my CPA that is no longer the case. So many people are working from home the past decade or so that it is now very commonplace to use the home office deduction. If you are legitimately using a home office for your business there is no problem claiming it. Worst case scenario, even if you were to be audited, as long as it meets the rules you should be okay.

Kiplinger still lists the home office in its top 12 IRS red flag dangers. Most run afoul of the "exclusive use" rule of the home office. Lots of wiggle room for the IRS interpretation on that one during an audit. Count me gun shy on this one. I'd still advise doing an estimate on the small deduction it would offer against the risk of an extremely expensive and time-consuming IRS audit. Even if your deductions are 100% accurate and you have all the paperwork in order are you prepared to also assemble your last two or three years worth of documentation including all bank savings and checking accounts? Remember, that you will be hosting one or two agents in your home and provide them every record they request and that they earn their employment recognition for finding every possible reason to disallow any other expense on your return.

The additional risk is not just limited to the IRS. Every IRS audit I've gone through involved similar interest by the state. I can't say for certain that they "work together" but in my case both IRS and state audits came suspiciously close together. If the state gets involved you will almost certainly will be assessed a penalty and/or back charges from "use taxes" you haven't paid on out-of-state purchases for any of your business-expensed items. Don't know about the Use Tax? Most folks don't nor do they pay it. That line is on most state income tax forms. The kicker is that the Use Tax applies to both business and personal purchases. When the state goes through the last few years of your purchase receipts, including personal purchases, you will get a rude awakening. And a sizable state invoice.

In theory you may be in the "right" to claim such a deduction. But you also have a "right" to jump over a pond of alligators.

michaeldb · « **Reply #12 on:** August 20, 2012, 17:55 »

Quote from: lisafx on August 20, 2012, 16:43

Quote from: louoates on August 20, 2012, 15:18
If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead.

This used to be the conventional wisdom, but according to my CPA that is no longer the case. So many people are working from home the past decade or so that it is now very commonplace to use the home office deduction. If you are legitimately using a home office for your business there is no problem claiming it...

My accountant told me the same thing. I have been deducting home office expense for a few years and (crossing fingers and knocking wood) no problems yet.

I also agree with ShadySue that getting an accountant is a good idea. If you are making more than a few hundred dollars a year from microstock, you probably have some tax options you don't know about if you do your taxes yourself.

Mantis · « **Reply #13 on:** August 20, 2012, 18:51 »

Quote from: louoates on August 20, 2012, 15:18

If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead.
If you are in business you must have an accountant who can explain all these wrinkles. The multiple audits I've been through in several of my businesses have caused me to be super-conservative in such matters.

^^This is completely correct^^. I have opted NOT to claim a home office for the reasons Lou states. It just isn't worth the risk. I was audited last year and it was specifically about MS income and wife's school tuition. You are GUILTY until proven innocent. The IRS sends you a bill with all kinds of interest and penalties and you have to fight it. A home office makes things exponentially worse.

Lou, I am in Mesa.

lisafx · « **Reply #14 on:** August 20, 2012, 19:14 »

Quote from: louoates on August 20, 2012, 17:30

If the state gets involved you will almost certainly will be assessed a penalty and/or back charges from "use taxes" you haven't paid on out-of-state purchases for any of your business-expensed items. Don't know about the Use Tax? Most folks don't nor do they pay it. That line is on most state income tax forms. The kicker is that the Use Tax applies to both business and personal purchases. When the state goes through the last few years of your purchase receipts, including personal purchases, you will get a rude awakening. And a sizable state invoice.

In theory you may be in the "right" to claim such a deduction. But you also have a "right" to jump over a pond of alligators.

Use Tax. Yeah. I am surprised you managed to miss all my posts on that. I talked extensively about it here on MSG. Suffice to say - Been there, done that, paid a couple of grand for the privilege. My state audit had nothing to do with any IRS audit though. It happened when I incorporated. One of the many joys of incorporation.

So by my experience, incorporating is much more likely to get you audited than claiming a home office...

That said, I am not wedded to the home office deduction. Never having been through an IRS audit, I am not about to argue with you guys who have. Sounds like a nightmare even if you haven't done anything wrong.

michaeldb · « **Reply #15 on:** August 20, 2012, 21:09 »

Quote from: Mantis on August 20, 2012, 18:51

Quote from: louoates on August 20, 2012, 15:18
If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead.
If you are in business you must have an accountant who can explain all these wrinkles. The multiple audits I've been through in several of my businesses have caused me to be super-conservative in such matters.

^^This is completely correct^^. I have opted NOT to claim a home office for the reasons Lou states. It just isn't worth the risk. I was audited last year and it was specifically about MS income and wife's school tuition. You are GUILTY until proven innocent. The IRS sends you a bill with all kinds of interest and penalties and you have to fight it. A home office makes things exponentially worse

I don't mean to argue with you, I'm sure you're right, but I am curious. If the IRS issue with you was about your MS income and your wife's tuition what does that have to do with a home office deduction? And if you didn't claim the deduction, how could it make things 'exponentially worse'?

'Exponentially worse' implies that if the IRS decided you owed more taxes for the year in question and a penalty, then the amount owed would be multiplied several times because you claimed a home office deduction, which you say you did not claim anyway. I don't understand.

Mantis · « **Reply #16 on:** August 21, 2012, 06:58 »

Quote from: michaeldb on August 20, 2012, 21:09

Quote from: Mantis on August 20, 2012, 18:51
Quote from: louoates on August 20, 2012, 15:18
If Canada's tax folks are anything like the U.S.'s your home office deduction is a red flag. You may as well tattoo "audit me" on your forehead.
If you are in business you must have an accountant who can explain all these wrinkles. The multiple audits I've been through in several of my businesses have caused me to be super-conservative in such matters.

^^This is completely correct^^. I have opted NOT to claim a home office for the reasons Lou states. It just isn't worth the risk. I was audited last year and it was specifically about MS income and wife's school tuition. You are GUILTY until proven innocent. The IRS sends you a bill with all kinds of interest and penalties and you have to fight it. A home office makes things exponentially worse
I don't mean to argue with you, I'm sure you're right, but I am curious. If the IRS issue with you was about your MS income and your wife's tuition what does that have to do with a home office deduction? And if you didn't claim the deduction, how could it make things 'exponentially worse'?

'Exponentially worse' implies that if the IRS decided you owed more taxes for the year in question and a penalty, then the amount owed would be multiplied several times because you claimed a home office deduction, which you say you did not claim anyway. I don't understand.

I was merely making the point that an audit like that was simple, but very painful because of the fact you are guilty before proven innocent. Home deductions are not always so black and white and would likely be more painful and difficult to defend, that's all.

TrishZ · « **Reply #17 on:** February 26, 2016, 12:16 »

Quote from: kingjon on August 20, 2012, 11:31

Ah yes, Canada. I'm also in Ontario (near Ottawa). I'm not a tax expert but this is based on my own experience with microstock income for about 5 years.

I'm not aware of any income limitations for home office. I certainly use that deduction (I have a small home studio as well). As has been mentioned already, you're not an employee but are getting paid royalties. Since you are in Canada, you're probably receiving a T5 from IS. I've reported here in the past limitations in the tax software (Turbotax and Quicktax before it) related to t5 royalties. The software adds the income to your regular salary by default. If this is your issue, send me a site mail and I'll describe what I do to fix the problem.

Regards,

John

Hello John
I'm new on this site, and this topic applies to me, but I can't find a way to send a site mail.

ShadySue · « **Reply #18 on:** February 26, 2016, 12:37 »

Old topic alert - from 2012!

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Author Topic: TAX Questions (Read 8925 times)

MarkRyanDesigns

EmberMike

Sean Locke Photography

ShadySue

MarkRyanDesigns

kingjon

Pixart

MarkRyanDesigns

louoates

lisafx

Pixart

louoates

michaeldb

Mantis

lisafx

michaeldb

Mantis

TrishZ

ShadySue

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