3 ms·

It all really depends on your situation and context. Does your company have an office yet? If not it's probably the founder's residence. I've heard of apartment

by dcow 4y ago

It all really depends on your situation and context. Does your company have an office yet? If not it's probably the founder's residence. I've heard of apartments listed as offices in very early days. It's not about committing fraud, it's about working with what you've got. But for sure paying founders a low salary and running everything through the business is a tax-conscious strategy to minimize overall expenses.

gnicholas 4y ago
The rules around home offices are very strict — it has to be a physical space that is used exclusively for work purposes. Even if it's a guest bedroom that is used mostly for work, but also occasional guests, then it doesn't qualify. That doesn't mean you'd necessarily get caught, but it does mean that it is not allowed. And if you tried to claim your entire residence, that would definitely not fly, and would be much more likely to be found out by tax authorities.
- jrochkind1 4y ago
  I believe you also have to be self-employed now. Which possibly some but not all founders would qualify as.
  - jefftk 4y ago
    Yes: there's a weird temporary limitation on this until 2025. The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home. https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-home-office-deduction-rules-during-small-business-week https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-ho...
jrochkind1 4y ago
The IRS does not really agree. Home office expenses got quite a bit stricter a few years ago, and even before that expensing your entire apartment because you worked out of it was probably not technically allowed. https://money.usnews.com/money/personal-finance/taxes/articles/guide-to-home-office-tax-deduction https://money.usnews.com/money/personal-finance/taxes/articl... However, the IRS has very little staff to audit or enforce, you can probably get away with breaking the rules... until you don't.
- gamblor956 4y ago
  Note that if someone get caught doing this, the IRS can and will open other additional tax years for examination. The statute of limitations is currently 3 years from when the return is filed, 6 years if the deficiency (between the reported amount and the tax calculated due by the IRS) is 25% or more and the disparity is unintentional or the result of good faith efforts by the taxpayer to report their liability. However, if a deficiency is deliberate, there is no statute of limitations on how far back the IRS can go to audit the tax year and assess penalties (and possibly also refer to the DOJ for criminal charges).
- dcow 4y ago
  The home office thing is a personal deduction that an individual can claim. I'm talking about scenarios more akin to "the founder sleeps in the company office".
  - jrochkind1 4y ago
    Where the "company office" just happens to be a (from GP comment we are all replying to) "fancy SF and NYC apartment" in a residential building? I mean, I'm not a lawyer or CPA, and I'd advise any HN readers to consult such before deciding on a tax strategy based on HN thread. Because, also, yeah, no. Honestly, if you are sleeping in an actual office as your primary residence, you probably technically have to include the fair market value as income on your personal taxes, but if you're really on a couch in an office building maybe you can get away with it (until the landlord of the office building kicks you out because it's not zoned for or up to code for residential and thus illegal for them to rent to you for that purpose). If it's a residential apartment... sounds like out and out tax fraud to me. I am not a lawyer and this is not legal or tax advice.

by dcow 4y ago

gnicholas 4y ago

The rules around home offices are very strict — it has to be a physical space that is used exclusively for work purposes. Even if it's a guest bedroom that is used mostly for work, but also occasional guests, then it doesn't qualify. That doesn't mean you'd necessarily get caught, but it does mean that it is not allowed. And if you tried to claim your entire residence, that would definitely not fly, and would be much more likely to be found out by tax authorities.

jrochkind1 4y ago
I believe you also have to be self-employed now. Which possibly some but not all founders would qualify as.
- jefftk 4y ago
  Yes: there's a weird temporary limitation on this until 2025. The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home. https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-home-office-deduction-rules-during-small-business-week https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-ho...

jrochkind1 4y ago

The IRS does not really agree. Home office expenses got quite a bit stricter a few years ago, and even before that expensing your entire apartment because you worked out of it was probably not technically allowed. https://money.usnews.com/money/personal-finance/taxes/articles/guide-to-home-office-tax-deduction https://money.usnews.com/money/personal-finance/taxes/articl... However, the IRS has very little staff to audit or enforce, you can probably get away with breaking the rules... until you don't.

gamblor956 4y ago
Note that if someone get caught doing this, the IRS can and will open other additional tax years for examination. The statute of limitations is currently 3 years from when the return is filed, 6 years if the deficiency (between the reported amount and the tax calculated due by the IRS) is 25% or more and the disparity is unintentional or the result of good faith efforts by the taxpayer to report their liability. However, if a deficiency is deliberate, there is no statute of limitations on how far back the IRS can go to audit the tax year and assess penalties (and possibly also refer to the DOJ for criminal charges).
dcow 4y ago
The home office thing is a personal deduction that an individual can claim. I'm talking about scenarios more akin to "the founder sleeps in the company office".
- jrochkind1 4y ago
  Where the "company office" just happens to be a (from GP comment we are all replying to) "fancy SF and NYC apartment" in a residential building? I mean, I'm not a lawyer or CPA, and I'd advise any HN readers to consult such before deciding on a tax strategy based on HN thread. Because, also, yeah, no. Honestly, if you are sleeping in an actual office as your primary residence, you probably technically have to include the fair market value as income on your personal taxes, but if you're really on a couch in an office building maybe you can get away with it (until the landlord of the office building kicks you out because it's not zoned for or up to code for residential and thus illegal for them to rent to you for that purpose). If it's a residential apartment... sounds like out and out tax fraud to me. I am not a lawyer and this is not legal or tax advice.