Monday, May 28, 2012

Home office: Partnerships

Please remember that we are answering the following question on this post:

What if I have a partnership, the partnership does not have office space and therefore, I must use space in my home...

The rules for partners to expense the business use of their home is fairly straightforward.

Please note the following issues, there may be limitations on the amount you are able to expense.Also, you should not include the expense amount on form 8829, because this form is to be used for Schedule C filers specifically. If you do not know what this means, you should ask your accountant, and not try to take a deduction for these expenses on your own! 

Also, if you receive Rental payments from the partnership you may not deduct home office expenses, because you would be deemed an employee under the "rental-to-an-employer" rule found in IRC Sec. 280A(c)(6).

Now that we have that out of the way, we can go back to the task at hand. Partners can take a deduction for their home office expenses if the space is used regularly and exclusively for partnership business and at least one of the following three tests is passed:

1. The home office is used as the partner's principal place for conducting business.

2. The home office is used as a place where the partner meets or deals with clients or customers of the partnership in the normal course of business.

3. The home office is a separate structure (such as a converted garage or barn or other stand-alone building) and is used for any purpose in connection with partnership business.

If you have follow-up questions or clarification questions as to specific situations contact your accountant, or send me an email. 

Saturday, May 26, 2012

Home offices: lessor known facts about a lessor known subject

When people come to our office, usually we talk tax, for this reason we talk a lot about the same or similar subjects, "how much is the standard maximum federal business mileage rate (usually our clients just call it the mileage rate, because I think only people in the industry and IRS agents care about the technical name)?"

One topic that also comes up fairly often are expenses for the business use of your home, usually call the home office deduction. 

Usually this expense is taken for a person with a home based business, filing Sch C. This year I fielded a few interesting questions:

1. What if I have a corporation that does not have a formal office space, can I take an expense for the businesses use of my home (office)? 

2. What if I have a partnership, the partnership does not have office space and therefore, I must use space in my home... 

For the answers to these questions, please see my posts titled:

Home offices: Corporations

Home offices: Partnerships

Thursday, May 24, 2012

Mileage rates hold steady for 2012

The IRS has held the maximum allowable reimbursement rate for business mileage at 55.5 cents per mile for 2012. All businesses should take note of the mileage rate for the year.

In addition, employees should also take note, as you may be entitled to unreimbursed employee deductions if you incurred business mileage, but were not reimbursed at the maximum allowable rate for the year. A word of caution, the deductibility of these amounts are limited by a factor of overall income for the year, so not all people will have a deductible expense, plus all people whom would be better served by taking a standard deduction for the year, would not be entitled to a deduction for these amounts...

Also note that the medical and moving mileage rate decreased from 23.5 cents per mile at the end of  2011 to 23.0 cents per mile in 2012.

Saturday, May 19, 2012

MBT Repeal Continued

Although I have included many articles relating to the Michigan Business Tax (MBT) repeal.

This article will cover the last remaining nuances relating to the effective close out of the Michigan Business Tax.

As I noted in my previous articles, the Michigan Business Tax has been repealed as of December 31st, 2011. This date is a hard tax date.

For this reason, if you are a business with Michigan sales, and you have a year end other than December 31st. You may have an additional tax filing for the period ending December 31, 2011.

The calculation for whom is required to file, is a little less than straightforward, for this reason, you should consult with your tax advisor on this matter.

However, all businesses who are required to file a Michigan Business Tax return, are required to file a final return by April 30th, 2012 (unless your business has elected to continue to use the MBT return, due to expiring tax credits).

Saturday, May 12, 2012

Partnership formation: almost too easy

Usually accountants shy away from legal topics, but one topic keeps coming up in our profession.

The creation of partnership agreements.

This is a particularly interesting topic now that the IRS has significantly increased late-filing and non-filing penalties for partnership returns...

Most people don't realize it, but a partnership is easier to create than most things in life. In most States, a partnership can be formed between two individuals with a verbal agreement. This means if you are in business, you may have a partnership formed and not even know it. In practice this creates many problems. I will give you one real life scenario:

Ryan and Matt are best friends they decide one day to open up a bicycle repair shop, out of Ryan's garage. They begin by fixing their friend's and family's bikes on the weekends. Before long their word of mouth business is making so much money that Matt and Ryan cannot keep up and perform their normal 'jobs'. For this reason, Matt quits his job and takes up the business full time.

While they are still in business together Matt and Ryan have very different definitions of who is entitled to the income and how they will split it. So they have a lot of problems, problems that could have been solved with a formal partnership agreement. One of their biggest problems, relates to how to filed their returns for 2008. Both Matt and Ryan included income on their personal returns equal to their share of the combined 'entity'. When Matt was audited on his 2008 return in 2010. The auditor working on his personal return founds something interesting, there was no partnership return completed for 2008 and 2009. For this reason, the IRS issued a failure to file penalty for the tax years 2008, and 2009 for failure to file partnership returns. These penalties were in addition to the items found on Matt's personal return. The penalties for failure to file in 2008 and 2009 amounted to over $2,100.

Matt and Ryan would have been in a better position had they filed accurate returns for 2008 and 2009, however, most people are not aware of the ease at which they can create a partnership. But, now you have no excuses!

Tuesday, May 8, 2012

Rebuilding: Is the economic free-fall stabilizing?

In the last year the US economy, as well as economies of specific states, have seen marked improvement. The most recent figures put the seasonally adjusted unemployment rate nationally at 8.2%.

Here in Michigan we have seen similar improvements in the unemployment rate as the most recent figures put the seasonally adjusted unemployment rate for the state at 8.5%, this is down significantly from the same figures a year ago, which were a whopping 10.5%.

When you look at the improved jobs picture in the last year, you can see some interesting changes.

The workforce in Michigan can tell a tale of two major changes, in the federal economy as a whole. When you look at Michigan's recovery you will notice that there were three sectors that drove the improvement. These sectors were:  manufacturing, professional and business services, and education and health services. During the same time period, retail trade jobs and governmental jobs have actually declined. Also, the total labor force has declined in Michigan for the same one year period.

Real improvement takes time.

As a State and a Nation we should also be wary of sounding the drum of improvement, as the improvements seen in unemployment recently are tender and soft. If you assume that a “healthy” level of unemployment is somewhere between four and six percent there is still a long way to go toward improving our foothold. However, improvements as large as this have to start somewhere. I guess we would say that we are cautiously optimistic that recent changes are the foreshadowing of better times ahead.

Saturday, May 5, 2012

Interesting Article in Accounting Today

Accounting Today is a publication that highlights a lot of interesting topics within the accounting industry (for those of you that are not accountants, yes we do find these articles interesting).

Every once in a while they will also have an interesting marketing piece, or general interest piece that can be applied to other industries. An article released this week, highlights how small businesses are under utilizing their accountants. Since they surveyed both United States and Canadian small businesses, I will assume they are just talking about the Canadian Small Businesses...

Unfortunately, though this is not the case. Small business owners acknowledged that accountants were critical to their success, but still under utilized their services.