This document provides tax tips for professionals and small business owners. It discusses the home office deduction and requirements like the space being used regularly and exclusively for business. It also covers tax incentives like bonus depreciation that allow faster depreciation of assets. Additionally, it outlines increased deduction limits under Section 179 and the ability to expense some real property costs. The document concludes with some common tax "red flags" the IRS monitors.

1. Tax Tips for Professionals & Small Business Owners OVERVIEW: Home Office Deduction Tax Incentives Red Flags

3. home insurance premiums

4. repairs

5. the lower of the cost of your home or its market value (through depreciation over 39 years)

6. property taxes

8. a place where you meet with customers or clients

9. connected with your business if your home office is in a separate structure (such as a detached garage or barn)REGULARLY requires that business use is not occasional-such as a dentist using a home office only for occasional emergencies.

12. the nature of the work you perform at each location

13. the amount of time you spend at each location

15. reads medical journals

16. schedules appointments

17. does bookkeeping work for his practiceUnder the facts and circumstances test, the IRS looks to Doc's business and the nature of the work he performs at each location. Doc is a cardiologist and performs surgeries and consultations at hospitals. Since the work of a cardiologist is primarily surgical and consultative, Doc cannot take a home office deduction (under the facts and circumstances test) because his primary work is done at hospitals.

18. Home Office Deduction-Principal Place of Business (Example cont'd) However, Doc can take a home office deduction because he performs managerial and administrative work out of his home office (and doesn't do such work at another fixed location). This fact scenario is based on the Solimon v. Commissioner case. In this Supreme Court case, the Court agreed with the IRS and disallowed the home office deduction under the facts & circumstances test. In response, Congress changed the law by expanding the definition of principal place of business to include the place where managerial and administrative tasks are performed.

19. Home Office Deduction-Bonus A very important advantage of having your home as your principal place of business is that commuting expenses become deductible. Normally, your commute to your first business stop (and from your last business stop to your home) are not deductible. When your home is your principal place of business, commuting expenses from your home office to your first business stop (and from your last business stop to your home office) become deductible.

21. you must actually meet with customers/clients at your home (i.e., teleconferencing or videoconferencing does not count)

22. your home office is "connected with" your business if the home office is in a separate structure

24. home office deductions for employees and owners of corporations are only allowed if the employee's home office is used for the convenience of the employer

25. If your employer provides you with an office at work, but you choose to work at home, you can't take a home office deduction because you are working at home for you own convenience

27. 50% bonus depreciation for all of 2012

28. Increased Section 179 deduction for 2011

30. Incentives-Bonus Depreciation Example: You buy $100,000 of eligible property (defined below). The annual depreciation under regular depreciation and bonus depreciation (assuming it’s 5 year property) is shown in the following table:

32. ITS ORIGINAL USE BEGINS WITH THE TAXPAYER (I.E., IT IS PURCHASED NEW)

33. computer software (generally off-the-shelf software)

34. qualified leasehold improvement property

35. made pursuant to lease

36. occupied by lessee

38. Incentives-Increased Section 179 The Section 179 expense is limited to taxable income from any of the taxpayer's trades or businesses. If the taxpayer operates under an S corporation or LLC, Section 179 is also subject to the taxable income of the S corporation or LLC. However, when determining the taxable income of an S corporation or LLC, shareholder wages (for an S corporation) or guaranteed payments (for an LLC) are added back to the business' taxable income. Section 179 disallowed because of the taxable income limitation can be carried forward indefinitely.

39. Incentives-Increased Section 179 Example: S Corp has $100,000 of taxable income before Section 179 expense. If S Corp buys $150,000 of equipment, its Section 179 expense is limited to its taxable income of $100,000. Example 2: Same as above example except that the $100,000 taxable income is after a $60,000 deduction for shareholder wages. Since shareholder wages are added back to taxable income for Section 179 purposes, the adjusted taxable income is $160,000 and the S corp can claim the full $150,000 Section 179 deduction. Example 3: NEW SET OF FACTS: Joan operates as a proprietorship and files a Schedule C (Profit or Loss from Business). She has $2,000 of taxable income from the business and bought $5,000 of equipment. Her husband has wages of $50,000. Even though her proprietorship only has $2,000 of taxable income, she can claim the full $5,000 Section 179 expense because her husband's $50,000 wages count as taxable income from a trade or business for Section 179 purposes.

41. Qualified restaurant property

43. IRS is looking at "exclusively" requirement & personal expenses being deducted through home office

44. Compensation for S corporation officers

45. Form 1099 compliance

46. Foreign bank account reporting

47. Hobby losses

48. Shareholder basis