It’s TaxQuips time from TaxMama.com.®
Today TaxMama® wants talk to you about some of the common questions you raised in the TaxMama® Tax Forum.
Tax Season is always a frustrating time for taxpayers – and tax professionals. These last two seasons were the worst. Aside from confusing law changes that took affect as a result of the COVID19 pandemic; the pandemic also forced IRS staff to abandon workstations and work from home.
I don’t need to quote you statistics to show you what a tough time you had dealing with IRS errors because paper-filed checks and documents haven’t been posted, long waits on phone lines, etc. We’ve already beaten that to death.
So let’s look at some of your questions, recently, which might help others in your situation.
Q1. Office in Home:
If total sq footage of a home is 1,000 sq ft and office space inside the home is 100 sq ft, does it make a difference if Form 8829 is used versus deducting 10% of expenses like rent/electric/wifi, etc.on a schedule C? Also, when does using the simplified method come into play on Form 8829. Does the simplified method even make a difference if a business operated at a loss?
A1. (Edited for brevity)
Uh. yes, it does make a difference. If you want to deduct office in home expenses, ” like rent/electric/wifi, etc. on a schedule C” If you deducted them directly, you are apt to generate that deductible business loss you were asking about – and that would not be permissible.
You can read more about the Office in Home deduction and how it works in this IRS publication https://www.irs.gov/pub/irs-pdf/p587.pdf .
Q2. Series I Bonds
I need some advice on tax reporting if I purchase an I-bond, say $10K from Treasury Direct for an S corporation in in 2022. I believe buying an I bond is a good idea for business.
- How to report the principal amount of $10k while filing taxes next year?
- I would not like to invest from current year earnings. I would rather use the left over money from past years. Is there any catch or things I need to consider?
A2. If you buy the I Bond in the S corporation, here’s what happens. Your transaction will be recorded on the books, as follows:
- $10,000 Debit – Asset – I Bond
- $10,000 Credit – Cash
It doesn’t affect income.
It doesn’t change your bottom line – profits or losses.
It doesn’t affect your basis, since the asset remains in the S corporation.
If you buy them by the end of April the interest rate is 7.12% for 6 months.
Q3. Too Much Withholding
My employer withheld basically my entire check. I requested an additional annual quantity to be taken out, but they took it all out of one check. They said I had to wait until next year when I file to get it back. Can’t I just withhold less or file exempt until I get back the overpayment? Its almost 50% of my entire year’s taxes.
A3. TeeEarls replies – If you indicated a dollar amount on your W-4 in the “extra withholdings” box, that is the extra amount EACH PAY PERIOD you want withheld. See the description for step 4-C on the Form W-4 ( https://www.irs.gov/pub/irs-pdf/fw4.pdf ).
But yes, you absolutely can file a new Form W-4 with your employer to lower the withholdings for the rest of the year. Just do the calculations to figure out what the total amount should be for the year, subtract out what has already been withheld, and then divide the remainder across the rest of the pay periods so that you end the year with the total desired amount withheld.
Usually withholding questions are about not having enough withheld. So, please, be SURE to look at your year-to-date paystub this week. Verify that you have the correct state withholding. And that you have the right amount for this time in the year.
There are many, many more questions in the TaxMama® Forum. Drop by and read – or ask your own. http://iTaxMama.com/AskQuestion
And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion