Well, its new to me...

Choosing standard or itemized deduction is an allowed choice, except in MFS situations where the other spouse itemizes.

But choosing not to claim actual expenses in order to increase EIC is not submitting a true and accurate return.

So would the choice to NOT claim a home office when it is allowed for a client be just as untrue and inaccurate? Sometimes it is not claimed so as not to create a "red flag", or to not create a depreciation recapture situation for later.

I am not seeing a difference, whether itemized or any other above the line deduction. I can find no requirement to take them if it reduces the net tax due or maximizes the refund, something the IRS says we may do. But I am honestly looking to be proven wrong. Any citations from Rulings or cases would be helpful.

This question has come up in other contexts and I don't know that a satisfactory answer has been determined for every context. The code implies that, for exemple, it is not necessary to deduct depreciation, though when depreciated property is sold even non-deducted depreciation that could have been taken must be recaptured.

But asking this question with respect to the home office is problematic, because it is so easy to disqualify a home office. One requirement is that the home office be used solely and exclusively for business purposes. If you say that you sit at your desk and read the newspaper each day before starting work, it no longer qualifies. I doubt the IRS would be able to challenge that.

Stu

But wouldn't it be just as easy to disqualify mileage expense IF adequate records were not kept?

The difference seems simple enough. Your client who delivers newspaper uses a vehicle in her work and therefore MUST take applicable expenses on the schedule c. She would not need a home office, nor could she justify one so that potential deduction is moot.

ChEAr$, Harlan Lunsford, EA n LA

What if you can't document those expenses? (I believe I suggested earlier filing correctly, and hoping the IRS disallows them in audit.)

In this case, the taxpayer has the option to use "actual cost" rather than "business mileage", correct?

Seth

If you're talking specifically about vehicle expenses, remember that when one uses a passenger vehicle in trade or business, the business and total mileage must be reported, whether or not mileage or actual expenses are used.

As for the propriety of omitting applicable expenses, there is a blurb in IRS publications, instructions, regulations that Art is referring to above. Such omissions are not allowed in order to beef up net profit for the EIC purposes. Since the OP's client has a fixed route for delivering papers, it's a simple thing to compute business mileage. And if the taxpayer doesn't do it, IRS can.

ChEAr$, Harlan

ChEAr$, Harlan

Yes, so it's a good idea to always take the allowed depreciation, because it's going to be added back when you sell your item anyway. So on a related node, if you have a home office because you use a portion of your home exclusively for business, then when you sell the home do you have to add back the depreciation that could (and probably should) have been taken on the home office portion?

What do you mean by "I doubt the IRS would be able to challenge that"? Do you mean challenge the fact that you read the newspaper every morning, or challenge that reading the newspaper is business use? Also, at a lot of big companies (which are probably C corporations), employees do browse the web, read newspapers, etc, yet the company gets full deduction and depreciation for everything -- so is it correct to say that even for the home office, 1% personal use is tolerated. Surely, there would be no way for the IRS to prove this.

Harlan Lunsford wrote: ...

What if the client didn't have supporting records? Would be "required" to take an unsupportable deduction?

I fail to see a _requirement_ to take a deduction if it isn't favorable to do so as long as the income is reported and there's no falsification. Election to not claim any deduction seems perfectly legitimate to me.

The real dilemma, as I've heard it explained, is created by refundable credits such as the EIC and Additional Child Tax Credit. Without those, no rational taxpayer would willingly forego valid net deductions.

FWIW, every tax software I've used requires vehicle mileage evidence to both exist and be in written form to be allowed (see Form 2106,

-Mark Bole

I have to AGREE with Harlan when it comes to not showing "total expenses" to inflate earnings for EIC purposes. IRS is really cracking down on EIC abuse/fraud and preparers are subject to severe monetary penalities. IRS is also taking a closer look at "Zero" expense Sch C's that "hit the sweet spot" for EIC. Show all allowable expenses!

========================================= MODERATOR'S COMMENT: Please please trim the extra stuff away!

And just to add:

In order to claim even actual expenses of a vehicle, you still need to know the actual mileage used for business, and for other purposes, in order to know the percentage of business use.

Let's say you know the cost of insurance for that vehicle. $1000.

In order to know the percentage of that 1000 allowed as a business deduction, you have to know the ratio of business mileage to total mileage.

If 20% of the vehicle's mileage is for business, than 20% of insurance costs are business.

But you need mileage.

That's typically only a minor part.

You also need gas. What if the taxpayer doesn't have good receipts for gas purchases, or even know the total amount?

Seth

Knowing the mileage, and the average miles per gallon for typical vehicle of make and model, one can easily reconstruct these records, even considering variations in gas prices, like recently.

IRS doesn't require all meal receipts, remember? So in a case like this, they would also be lenient on actual gasoline receipts.

ChEAr$, Harlan

Doesn't the IRS require receipts for all expenses over some threshhold (I recall $25, but it might have changed)? $25 won't buy half a tank of gas these days.

Seth

ChEAr$, Harlan Lunsford, EA n LA