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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1781
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Im self employed, consistantly profitable, working out of

Resolved Question:

I'm self employed, consistantly profitable, working out of my home / taking the home office deduction.
During 2012 I started a second serice oriented business (formed an LLC) which I also operate out of my home.
Questions:
1. For the LLC I use a dedicated seperate space. A second home office deduction on the second / new Sch C is justified. How would the tax agencies regard such a set-up ?
2. Same question for fixed assets purchased / converted from personal use. Again a deduction is justified but would you consider that to be a potential issue with the tax agencies.
3. The LLC did not generate any revenues in 2012. It is not expected to do so for a while.
My established home business has been profitable for the last 15 years. Even if the LLC does not generate any revenues I'll have taxable income / tax liability. with that setting in mind, is there an acceptable start-up period after which this could be an issue. Also, how does that effect the preferred set-up (questions 1&2). Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

HI

Anne :

Thank you for your question

Anne :

Can you please tell me what entity your LLC is? (Sole proprietor, S Corp,C Corp, Partnership?)

Anne :

I see you're not online. When you come back online, and answer my question, JA will notify me, and hopefully, we will be online together and be able to chat

Anne :

However, I am asking you the question re: how your LLC is set up, since some entities can have an office in the home, and some can 't

Customer:

are you there

Anne :

Yes, I apologize...........and I see I missed that I missed that it was Sch C

Anne :

Do you mind waiting a few minutes?

Anne :

I'm so sorry............this NEVER happens to me

Anne :

I'm here now

Anne :

and you have my undivided attention

Anne :

So you have stated a separate Sch C that has not earned any money yet

Anne :

and you want to know if you can deduct your cost expenses

Anne :

do I have that right?

Anne :

The answer to your first question re: 2 OIH......although this is not really unusual (I've done them over the years) it MAY be questioned by the IRS.............it looks like you've done your homework, and if you get a letter, you will explain it to them the way you wrote your question.........you nave 2 businesses and 2 SEPARATE rooms dedicated to your business

Anne :

The IRS understands that setting up a business takes money, which is why they allow you up t0 $5000 in start up costs

Anne :

I sincerely XXXXX XXXXX this answered your questions, but if not, please utilize the follow up question feature so that you will not be charged for a separate question

Customer:

The thing is I don't want to have to deal with the administrative nightmare that an audit is. Please define "may question" a second home office.

Customer:

Second, Are you saying that a start up could accumulate 5,000. in start-up expense and unless there are revenues that's all that's allowed or are you referring to start-up expenses cap and than on-going expenses are acceptable without revenues and if so for how long

Anne :

Nobody can give you a blanket statement that the IRS will not question you. HOWEVER, I CAN tell you that you are NOT the only person with2 home offices due to 2 home businesses, and I've prepared one person that has had this situation for over 20 years, and we have never even gotten a letter audit.

Anne :

As for the $5000 start up expenses, I did NOT mean to imply that you could not take additional expenses in the years you pay them, whether or not you have income from the business

Anne :

As long as you treat this 2nd business in the same manner you treated your first one (advertise, separate bank accounts, records of income/expenses, etc) you are absolutely free to take those expenses.

Anne :

I sincerely XXXXX XXXXX I did not make these issues clear

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1781
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 6 other Tax Specialists are ready to help you
Expert:  Anne replied 1 year ago.
Thank you for the accept and the positive rating

Please feel free to ask for me by name if you need help in the future.

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