Part 2: Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses

 

The following excerpt is from “Making The IRS Work In Your Favor” presented by Mark W. Sullivan, EA at the CMC LIVE hosted by Kevin Rutherford and Let’s Truck.

Taxpayers are not entitled to deduct any expenses for using their home for business purposes unless the expenses are attributable to a portion of the home, or a separate structure, used exclusively on a regular basis.  Here is what you need to know to take advantage of a great tax saving opportunity.

The Home Office Deduction

Who can claim the home office deduction?

Only self-employed individuals may claim home office deduction.

  • Sole proprietorships claim it on Form 1040 Schedule C
  • S-corporations claim it as an office expense on Form 1120S

The IRS has two tough tests to meet:

  1. Statutory Administrative / Management Activities Test
  2. Comparative Analysis Test

Administrative / Management Activities Test

Portion of home used exclusively

  • Billing customers
  • Keeping books and records
  • There is no fixed office location

Comparative Analysis Test

  • Determining principal place of business
  • Importance of activities performed at home office
  • Time spent at location

(Refer to IRC Sec 280A(a), 280A(c), 280A(c)(1)(A))

Example
Using a den to write legal briefs and tax opinions as well as for personal purposes does not meet the requirements to claim the home office deduction.
  • Fails the Comparative Analysis Test – Importance of activities performed at home office

Calculating The Home Office Deduction

Two options:

  1. Safe Harbor Method
  2. Allocable Portion of Home Method

Safe Harbor Method

  • Calculate percentage of home or structure used for business
  • $5 per square foot, up to maximum of 300 sq. ft. or $1500
  • Deduction cannot exceed business income

Allocable Portion Of Home Method

  • Calculate percentage of home or structure used for business
  • Multiply by total costs of maintaining home
  • Deduction cannot exceed business income

(Refer to IRC Sec 280A(c)(5)(A))

 

Questions? Email Mark W. Sullivan, EA.

About: Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.

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This article was written by Mark W. Sullivan, EA, Tax Counsel to Per Diem Plus, LLC and Of Counsel to Schroeder & Associates and leads the highly specialized Tax Controversy Group. His practice is concentrated in the areas of Federal tax controversies and litigation support/expert witness services in tax and other white collar cases. He also advises on tax planning and consulting for businesses and individuals. Mark has 25 years of experience in Federal Collection, Examination and Appeals representation.

Prior to starting a private practice in 1998, Mark was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service

Disclaimer

This article includes general tax information, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case. Please consult with a licensed tax professional.

Per Diem, tax tips for truckers, Trucker Taxes