Janitor Bob Posted February 18, 2014 Report Share Posted February 18, 2014 Client decides to jump on board the direct marketing bandwagon and start a "business" selling hand bags/purses (through Thirty-One). I sit down with her and explain the whole idea of business vs. hobby and explain to her what expenses might be deductible if we do approach it as a business...to assist in reducing the affect of her $1,000 1099-MISC income. She admits that there is no area of her home used exclusively for this activity, so no OIH...thus I inform her that she cannot deduct mileage...even if it was business-related...which was in itself questionable. I also inform her that her cell phone is not deductible since (among other reasons) she does not have another home phone...just her cell. She seems to understand and leaves me with her papers with a positive attitude...understandably since her product cost and other legitimate expenses would reduce her "profit" to only approx. $300.00....not having much affect if any on her usual refund. However, this evening, she e-mails me that she has been talking to other people she knows that do such "businesses" and they have been deducting such expenses for years...and that if I cannot deduct those things, she wants her papers back...below is my response...first time in my 16 years that this has happened. She is a nice young lady, but so be it...I do not have time for that crap. I understand completely. I pride myself on preparing returns according to IRS regulations in a manner that would hold up under IRS audit. A person can claim anything on their tax returns and not suffer any negative consequences…until they are audited….and there are no shortage of preparers willing to claim those deductions in order to attract or retain clients. While the chances of you being the unlucky one is really small, I will not lower my standards or risk my professional reputation by putting my name on a return that I consider questionable. I will be home tomorrow evening after 7:00pm, and other evenings this week after 6:00pm. I will have your papers ready. 14 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 18, 2014 Report Share Posted February 18, 2014 I may copy that wording!! Well spoken and well played!! Tell her to research what the IRS did to Amway... On second thought, don't tell her anything else! You are wise to send her packing. 1 Quote Link to comment Share on other sites More sharing options...
TAXMAN Posted February 18, 2014 Report Share Posted February 18, 2014 Jack Do you have a specific site in mind for the Amway group as I have several in my area? Thanks Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 18, 2014 Report Share Posted February 18, 2014 Jack Do you have a specific site in mind for the Amway group as I have several in my area? Thanks In the 1980s and 1990s, the IRS was specifically targeting Amway dealers who had reached any step higher than Direct for Audit. They succeeded in "gutting" the empire at the time. Now the truth is, those that got busted deserved what they got. Some of that old thinking still pervades. Just google search it. Lots to be seen out there. Talk to someone who was in Amway in the 80's and 90's and see what they say. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 18, 2014 Report Share Posted February 18, 2014 Two years ago I lost a good client and nearly lost her as a friend over education expenses and claiming her son as a dependent. He was well over 24 and she no longer paid for his education - he did, as a doctoral candidate. She did not pay for more than 50% of his support, the student loans were in his name and taken after his BS degree plus he worked part-time. He did sleep at her home sometimes but not always and bought most of his own food, paid for his own insurance, gas and clothes. I supplied all the references and, in fact, completed the returns correctly. She never signed the 8879 so it never got filed by me.Sometimes you just have to do what is right. 1 Quote Link to comment Share on other sites More sharing options...
Mr. Pencil Posted February 18, 2014 Report Share Posted February 18, 2014 I will not lower my standards or risk my professional reputation by putting my name on a return that I consider questionable. I would simply thank her for considering my services, and invite her to consult again if she has a need. And explain that I am returning her papers by mail, without charge. No other comment has any business purpose. 1 Quote Link to comment Share on other sites More sharing options...
SFA Posted February 18, 2014 Report Share Posted February 18, 2014 I agree with Pencil on this one. No need to tell her how ethical you are and obviously she is not. It can come across as pompous and that's when you lose, because that's all that the client latches on to in the message. They pick up their papers with an attitude, then move on and need to ridicule you to others, because you have turned the table on them. Now they are the ones who are insulted and need to find friends who agree with their position and console them. You have plenty of professionals on this site who have your back. We probably all have our own story of a client who has pushed our limits. I have had clients leave and return for similar reasons. Others, oh well. Next! Stay professional. There are a lot of fish in the sea. There are a lot of fish for me! 2 Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted February 18, 2014 Report Share Posted February 18, 2014 I agree with Pencil on this one. No need to tell her how ethical you are and obviously she is not. It can come across as pompous and that's when you lose, because that's all that the client latches on to in the message. They pick up their papers with an attitude, then move on and need to ridicule you to others, because you have turned the table on them. Now they are the ones who are insulted and need to find friends who agree with their position and console them. You have plenty of professionals on this site who have your back. We probably all have our own story of a client who has pushed our limits. I have had clients leave and return for similar reasons. Others, oh well. Next! Stay professional. There are a lot of fish in the sea. There are a lot of fish for me! Good Point! It doesn't always pay to strike back. Quote Link to comment Share on other sites More sharing options...
Elrod Posted February 18, 2014 Report Share Posted February 18, 2014 My Mom won't let me talk like that....Without a thump on the head. Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted February 18, 2014 Report Share Posted February 18, 2014 JB: Why can't she deduct her mileage? She does have an office in her home, that is the presumption now. She may not be able to claim OIH because of the exclusive use rules, but she would still get O&N miles after that. And Cell phone? Not all, but something, and probably not much. I understand many of those direct sellers are milking the tax deductions and deducting the world, and blowing up the Amway fraud (Please notice that the "owners" have renounced their citizenship and moved to island nations... dirtbags...) made a lot of sense. But she is entitled to O&N and mileage. Rich Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted February 18, 2014 Author Report Share Posted February 18, 2014 How can she deduct mileage without and OIH? How can she deduct phone when she has no other phone going into her home? Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted February 18, 2014 Report Share Posted February 18, 2014 JB: Why can't she deduct her mileage? She does have an office in her home, that is the presumption now. She may not be able to claim OIH because of the exclusive use rules, but she would still get O&N miles after that. And Cell phone? Not all, but something, and probably not much. I understand many of those direct sellers are milking the tax deductions and deducting the world, and blowing up the Amway fraud (Please notice that the "owners" have renounced their citizenship and moved to island nations... dirtbags...) made a lot of sense. But she is entitled to O&N and mileage. Rich I agree. Just because the office is not used exclusively for business does not mean that she does not have an office. The dining room table is her office if that is where she does her paper work. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted February 18, 2014 Author Report Share Posted February 18, 2014 But what about the the requirement for OIH that states the area of the home must be used solely and exclusively for that activity? Is that not one of the cornerstones of the office in home deduction? Without that OIH, how do you claim mileage and telephone. I was also always taught that IRS would never allow busines use of a telephone when it was also your main home phone unless it was part of OIH deduction? Quote Link to comment Share on other sites More sharing options...
Mr. Pencil Posted February 18, 2014 Report Share Posted February 18, 2014 Just because the office is not used exclusively for business does not mean that she does not have an office. The dining room table is her office if that is where she does her paper work. She may have an office at home, but (according to Pub 587) a home office can not be a principal place of business unless it it is used "exclusively and regularly." And (according to Pub 463) if the home is not a principal place of business, transportation between home and another work location is non-deductible commute. Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted February 18, 2014 Report Share Posted February 18, 2014 True, she cannot deduct office in home if it is not used exclusively for business, but that doesn't mean she doesn't have an office in the home. Quote Link to comment Share on other sites More sharing options...
SFA Posted February 18, 2014 Report Share Posted February 18, 2014 An office is not the same as a workstation (desk). Right now we have a client who joined the Pampered Chef program. She had about 4 or 5 events in 2013 (her first year). We are trying to sort out her situation, so this topic is very timely for us. She has a $1,500 1099-misc statement for commissions earned from her "catalogue" parties. She has no inventory, just "samples" for showing and demonstrating the merchandise. Business or Hobby? I think I know the answer. Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 18, 2014 Report Share Posted February 18, 2014 We're not trying to slice things into tiny slivers, but there are some potential deductions. Lots of folks have an office in home where they nonetheless do NOT qualify for the home office deduction, because of the "exclusive" rule. If I had a rented office and brought my house bills in to work on in "off" times, my rent would still be fully deductible. If I sit here, at my work desk, and use it to look up my home banking to make sure I did schedule that electric bill -- boom; I've just lost my "exclusive" use and the home office deduction. But this IS my business's sole office, and when I go to a client's site, that is solely business miles -- I'm going to their location for the purpose of doing work that cannot be done from/at my location for whatever reason. As for the cell phone -- yes, the first line to the house is personal. But did she add specific services *just* for the business? A larger data plan, more text messages, a nationwide instead of local, the ability to hook up a fax? There may be some exclusive-to-business services that are deductible. OTOH -- she may just want to deduct everything as others have told her. In which case, here's your hat what's your hurry. 2 Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted February 18, 2014 Report Share Posted February 18, 2014 She may havae an office at home, but (according to Pub 587) a home office can not be a principal place of business unless it it is used "exclusively and regularly." And (according to Pub 463) if the home is not a principal place of business, transportation between home and another work location is non-deductible commute. Mr. Pencil, If that happens to be the case, and that appears to be a very narrow reading of the publications from the IRS, which are not always in agreement or in favor of the taxpayer. Congress changed the rules and the new presumption is that if you have no other place of business, then it is presumed that you have a home office. Maybe not exclusive and regularly, so no OIH Deductions can be taken, but, then where do you start taking travel expenses? Your home. Now, if you have no fixed address, like an RV that you drive around in, then you may be stuck and out of luck. But she has a fixed address, and she travels to clients home to host the parties, thereby O&N travel. Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted February 18, 2014 Report Share Posted February 18, 2014 An office is not the same as a workstation (desk). Right now we have a client who joined the Pampered Chef program. She had about 4 or 5 events in 2013 (her first year). We are trying to sort out her situation, so this topic is very timely for us. She has a $1,500 1099-misc statement for commissions earned from her "catalogue" parties. She has no inventory, just "samples" for showing and demonstrating the merchandise. Business or Hobby? I think I know the answer. Business or Hobby? Personally, and on a rant, I think most of this is economic slavery. Your client got a 1099 for $1,500 and paid for $1,200 worth of "stuff" both for display and to sell to her clients. So, she netted $300, and probably spent 60-75 hours on parties, organizing, mailing, visiting, calling, etc, so that about $4 an hour... But that is ignoring all the other expenses... A family friend sells the baskets, and turns a minor profit every year. Selling about $75-90k each year. But its real work. Its not a hobby. But the profit is elusive... Rich Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted February 18, 2014 Report Share Posted February 18, 2014 How many people that have an office in home truly use it EXCLUSIVELY for business? I doubt if there is a single person anywhere that would qualify. I know, we are regulated by the code and regs, but . . . Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted February 18, 2014 Author Report Share Posted February 18, 2014 If OIH, travel from home to place of business/client is deductible. However, If no OIH then any travel from home to your first point of business/client is commuting (since that first point would be considered your place of busimess)...and any travel from your last place of business/client to your home is commuting...only travel to and from business places/clients would be deductible. and this client is only talking abouy mileage from her home to clients..as well as home to other point os business....No OIH, no deduction...that's my conservative opinion. and she admitted to me that she has no OIH...she just did this "business" on her kitchen table between meals. Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted February 18, 2014 Report Share Posted February 18, 2014 She had to store the bags somewhere right? Even if only a square foot of space. I think you are a little conservative here. However, there could have been a number of other issues in your interview that you didn't mention, and that adds to the conservative-ness of your response. Rich Quote Link to comment Share on other sites More sharing options...
Mr. Pencil Posted February 18, 2014 Report Share Posted February 18, 2014 Mr. Pencil, ICongress changed the rules and the new presumption is that if you have no other place of business, then it is presumed that you have a home office. I'm happy to see you refer to a specific rule. I would be even happier if you could identify that rule from Congress. The only thing I know of is that a court decided a home office could be a principal place of business for doing administrative work, a change from the earlier definition of most important work. But that did not change the requirement of exclusive and regular use. Certainly IRS pubs are not genuine authority. I myself pointed that out in an earlier thread. But that only works when there is something better, like a code section or regulation. Quote Link to comment Share on other sites More sharing options...
Mr. Pencil Posted February 18, 2014 Report Share Posted February 18, 2014 >>If I had a rented office and brought my house bills in to work on in "off" times, my rent would still be fully deductible. That is correct, according to tax law. >> If I sit , at my work desk, and use it to look up my home banking to make sure I did schedule that electric bill -- boom; I've just lost my "exclusive" use and the home office deduction.<< That is also correct, according to tax law. >>But this IS my business's sole office, and when I go to a client's site, that is solely business miles -- I'm going to their location for the purpose of doing work that cannot be done from/at my location for whatever reason.<< That is not relevant, according to tax law. But I am amused by the justification for taking the deduction, "for whatever reason"! Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 18, 2014 Report Share Posted February 18, 2014 <snip> >>But this IS my business's sole office, and when I go to a client's site, that is solely business miles -- I'm going to their location for the purpose of doing work that cannot be done from/at my location for whatever reason.<< That is not relevant, according to tax law. But I am amused by the justification for taking the deduction, "for whatever reason"! NO. STOP. The phrase "for whatever reason" is not a "justification" for deductions, it is a statement that some small portion of client work must be done at their locations for reasons too various and detailed (and confidential!) to type out. Travel from the world headquarters of this business to that client location is BUSINESS, solely and utterly. The daily commute is the walk down the hall to this SOLE business use office. Quote Link to comment Share on other sites More sharing options...
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