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ghs215
07-02-2014, 01:10 AM
Hello all,

My wife and I formed a LLC (manager managed) and would like to know if a home office deduction can be taken. The situation is that I work full time under a W2 at my employers office. My wife's job wanted her on a 1099 so we decided to form an LLC to take advantage of that. She works 99% of the time in her employers office. We registered the LLC under the home address and have a home office. This home office is regularly and exclusively used for the LLC (book keeping, website design, marketing, ect) So should we be able to take the home office deduction?

taxcpa
08-05-2014, 05:26 PM
As a general rule, if you use a portion of your home for business and satisfy the requirements you can get a deduction, though the deduction is usually not that much and does increase your risk of getting audited.
You mention creating an LLC. LLC's can be taxed in various ways. A single member LLC is generally taxed as a disregarded entity meaning it is taxed as a sole proprietor and all income and expenses are reported on the owners personal tax return as if the LLC did not exist. You can get a home office deduction under those circumstances.
My concern is that you state that your "wife's job wanted her on a 1099" and that she works 99% of the time at her "employers office." They want to pay her as a contractor instead of as an employee. The IRS has strict rules to determine if someone is a contractor or an employee. See the IRS info at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee
I have seen clients be very surprised to find out that independent contractors are taxed differently than employees. In addition to income tax, independent contractors have to pay the full social security and Medicare tax on their earnings. Employees only pay half and their employer pays the other half. Contractors, as independent businesses can more easily deduct their expenses, but that is not a help if you don't have many business expenses.
Other downsides include not be covered by the employers health insurance, retirement plan and other employee benefits. Often an "employer" who wants to pay you as a contractor is doing it to save money, costing the "employee" more money they may not realize. As a result, all things being equal, the contractor should demand higher pay then the employee.