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Home Office Deduction - Form 2106


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Taxwise has a lot of shortcomings compared to good old Taxworks. For form 8829 it will transfer the balance of realestate taxes and mortgage interest to Sch A.

I have not does a return yet this year with a 2106 and home office deduction. Generally those are the ones that IRS flags because they are W2 employees (except for stat. employees) and generally speaking they have an assigned work location provided by the employer.

Few years back I had a lady who was getting W2 income and claimed home office deduction. Upon audit IRS asked the taxpayer to get a letter from the employer that they required her to work from her own home as a condition of employment. Obviously she could not get any such letter. Come to find out later that the employer was a cousin and she wanted to work from home (book keeping and other admin duties) because she wanted to watch her kids!. Since then I always cution my 2106 clients if they want HO deduction.

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This guy is in sales. His company is in NY and he lives in IL, so I do believe the home office is legit. Plus it helps that I knew him personally.

I went into last year's Taxworks program and sure enough, if you linked the home office worksheet to form 2106, it transferred the real estate and mortgage interest to Schedule A.

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Not trying to split hairs here, but when you say this guy is in sales. What is his job function (not title). Is he a outside sales person, meaning he actually goes to sell at customer's location? Does he have his prospects visit his HO on a regular basis for sales presentations etc?

Why I ask? few years back i did the return of a new referral, an "External Wholesaler" for a Mutual fund company. He was audited for a previous year for HO deduction and was denied because his job functions were such that he could not demonstrate that his 800sq ft apartment was used regularly and exclusively for HO deduction purpose.

When i asked him how he sold whatever he was selling, he basically made appointments by mail or phone to visit other brokers in their office or at a public location (aka restaurat, golf/Ski) and made his pitch. So what did he do in his apartment. Basically made the calls and filled out expense reports! He could not convince IRS by showing his sales logs etc. The IRS found out that his company reimbursed him for mileage and phone charges, meals and entertainment of his clients.

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IKWYM. I have this from my Business Use of Home CPE:

A home office will qualify as a taxpayer's principal place of business for deducting
expenses for its use if the taxpayer meets the following requirements:
The taxpayer uses it exclusively and regularly for administrative or
management activities of his trade or business.
The taxpayer has no other fixed location where the taxpayer conducts
substantial administrative or management activities of his trade or business.

Thanks for the input.

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