Small penalty is when you make a mistake. Gigantic deductions with no income would have them charging you with tax fraud. The lawyer fees to defend yourself would be worse than the penalties.
Lack of profit doesnāt mean a business is unsuccessful
Companies like Amazon showed losses a decade because they had income from investors. So they had income, it was only that
the ābusinessā side of the business was unprofitable.
You canāt get away with deducting your mortgage as a business express from a unprofitable garage sale. Certainly not year after year.
Why do you assume you wonāt find a profitable niche in the process?
So we are back to, ājust buy a house if you canāt afford rent.ā
Gigantic deductions with no income would have them charging you with tax fraud.
Tax fraud would be claiming deductions for expenses that were never incurred. The expense of ārentā was incurred. The expense of āposterboardā was incurred. The expense of āballoonsā was incurred. Using your attic for something other than storing items you retail in your online store and garage sale would turn your claim into fraud, but I never suggested you should do anything like that. That you attempted to sell everything in your attic indicates it was not used for personal use. They may not allow you to claim it as a business expense, but they canāt argue fraud unless you used it for personal use despite claiming business. So donāt do that. Donāt use it for personal use when you claim it as a business use.
You canāt get away with deducting your mortgage as a business express from a unprofitable garage sale.
I didnāt say deduct your entire mortgage. You canāt do that, unless you use the entire home exclusively for business. But you certainly can deduct a part of your mortgage, a part proportional to the amount of your house you use exclusively for business.
So we are back to, ājust buy a house if you canāt afford rent.ā
What are you talking about? That doesnāt make any sense whatsoever, and it certainly doesnāt arise from my arguments.
Look, youāre entering into this from the assumption that Iām suggesting you defraud the government. That is completely untrue. What I am saying is that ābusinessā is a much broader category than you seem to think. A garage sale can certainly be a business activity. Re-selling merchandise online can certainly be a business activity. There is no explicitly defined line on how many business activities you need to perform, nor a explicit time period in which you need to perform them in order to consider yourself a business. As long as you approach it with the intention of (eventually) becoming profitable - even if you canāt figure out how to do that right now - it is a business, and you are entitled to claim it as such.
It is the epitome of foolishness to conduct business activities without declaring them to be ābusinessā.
You arenāt even googling before making shit up now.
Dude. You are clearly not understanding me. My statement - that you specifically quoted above - summarizes each and every point your link makes. You act like youāre disagreeing with me, but youāre supporting points Iāve already made. The disagreement you are having on this issue is entirely within your own head.
For example, from your link:
If the IRS believes you have erroneously claimed a home office or other deduction, it can ding you for anywhere between $500 and $5,000. This penalty can jump to 75% if the taxpayer deliberately and fraudulently attempts to reduce their tax liability.
My previous statement (Emphasis added):
They may not allow you to claim it as a business expense, but they canāt argue fraud unless you used it for personal use despite claiming business. So donāt do that. Donāt use it for personal use when you claim it as a business use.
Your link is just quantifying the penalties for ignoring my advice. Donāt āerroneously claim a home office or other deductionā. Go ahead and claim them, just make sure your claim isnāt erroneous. You are perfectly entitled to make a valid claim.
Iām entering this from the assumption that you are steering the argument into something completely unrelated because you were proven wrong.
That might just be a piss-poor assumption. You should probably go back and see if that assumption is actually justified. (Narrator: It wasnāt.)
IT DOESNāT MATTER IF YOU CAN LEGALLY DODGE TAXES BY RUNNING A BUSINESS. THE OP STATED THAT W2 EMPLOYEES DONāT GET THE DEDUCTIONS OF A BUSINESS.
This would only be a valid statement if ābeing a W2 employeeā precluded the individual from also running their own business. As the employee is not precluded from running a business, the W2 employee can get the deductions of running a business. You have no grounds to say that they canāt get the deductions of a business, when they can, in fact, get the deductions of a business simply by operating as a business.
Perhaps it would be useful to show you that a business is not always entitled to deduct something. For example, where a business (subcontractor) is hired by another business (prime contractor) and that prime contractor provides various direct compensation to the sub, the sub cannot deduct the expense in question. The subcontractor is, effectively, an employee of the prime contractor, even though both are businesses. Expenses made by the prime cannot be deducted by the sub. Remember that.
If the prime contractor provides eye protection and other PPE to the subcontractor, the subcontractor cannot deduct that PPE as a business expense. If the prime contractor provides transportation to and from the main job site, the subcontractor cannot claim transportation costs.
When you cannot claim your commute costs as a W2 employee, it is because the IRS requires those costs to be included in your negotiated direct compensation with your employer. Your pay specifically includes compensation for your normal commute. You are āreimbursedā for your normal commute costs, and donāt get to claim them yourself.
As a W2 employee, you can claim transportation costs to other job sites unless you are specifically reimbursed for your travel to those other job sites. If you are reimbursed, you donāt also get to claim it. Your employer gets to claim that reimbursement as a deductible expense.
If you donāt like that, donāt work as a W2 employee. Work as a contractor: a business. A contractor is allowed to deduct the expense of all non-reimbursed transportation costs, and is not expected or required to demand explicit reimbursement for transportation or other expenses in their negotiated fee.
Fraud can be overstated deductions. Given that you arenāt allowed to deduct your mortgage for a garage sale, and you are doing it every year to offset your W2 earnings, the amount of your phony deduction could be considered fraud. You canāt deduct hobby expenses.
If you donāt like that, donāt work as a W2 employee
Thatās not the discussion and you know it.
āRent is highā you: ābuy a houseā
āPolice are corruptā you: ābecome a policemanā
āTax policy is unfairā you: āstart a successful businessā
you claimed you could deduct part of your mortgage for a garage sale.
I claimed that a garage sale was a business activity. I said if you didnāt think an annual garage sale was sufficient to count as a ābusinessā, you could engage in online retailing or other additional activities as well.
You absolutely are allowed to deduct the costs for that part of your home you use exclusively for business purposes. Right from your own link:
"Part 1āPart of Your Home Used for Business
Lines 1ā3.
If you figure the percentage based on area, use lines 1 through 3 to figure the business-use percentage. Enter the percentage on line 3.
You can use any other reasonable method that accurately reflects your business-use percentage. If you operate a daycare facility and you meet the exception to the exclusive use test for part or all of the area you use for business, you must figure the business-use percentage for that area as explained under Daycare Facility, earlier. If you use another method to figure your business percentage, skip lines 1 and 2 and enter the percentage on line 3.
Iām beginning to get offended at the repeated insinuations that I am advocating fraud. You are looking at BUSINESS ACTIVITIES and declaring them to be fraud. Youāve adopted some sort of weird victim mentality here. You think that if ābusinessesā do it, itās permitted by the government, but if you do the exact same thing, itās fraud. Itās not.
Have you ever worked as a 1099 contractor? Have you ever had any income whatsoever that didnāt come from a W2 or capital gains? It really doesnāt seem like it. Your position on what constitutes a ābusinessā seems to be some kind of megacorporation, rather than a sole proprietorship. You seem to be under the impression that unless you can survive off the income of your business, itās not a business at all.
Fraud can be overstated deductions.
I never suggested overstating deductions. Your argument here is bordering on libelous.
Given that you arenāt allowed to deduct your mortgage for a garage sale,
Your own link says otherwise.
the amount of your phony deduction could be considered fraud.
There was no phony deduction.
You canāt deduct hobby expenses.
True, but I never suggested a hobby. I suggested a business. And I described numerous activities - not just a garage sale - that would constitute business. You consistently ignore the remainder of my argument: if you donāt think a garage sale is sufficient to constitute a ābusinessā, you can engage in online retailing and other activities as well.
āRent is highā you: ābuy a houseā āPolice are corruptā you: ābecome a policemanā āTax policy is unfairā you: āstart a successful businessā
Your first two points donāt arise from any of my arguments. As for the third, I never said āstart a successful businessā. Iāve said repeatedly that 30% of home businesses never show a profit. They still get to deduct their expenses. Your third observation would be better stated as āBusinesses get unfair tax breaksā : āStart a business, so you an claim the same tax breaksā
Thatās not the discussion and you know it.
Actually, it is the entire discussion. The fact that the IRS requires your regular commute and other expenses to be included in your negotiated pay as a W2 employee means that your expenses are effectively considered āreimbursedā. Businesses donāt get to claim reimbursed expenses as deductions. If you donāt want to include such expenses in your regular pay, you can work as a 1099 contractor rather than a W2 employee.
I claimed that a garage sale was a business activity.
You canāt deduct housing for a garage sale as you claimed.
The fact that the IRS requires your regular commute and other expenses to be included in your negotiated pay as a W2 employee means that your expenses are effectively considered āreimbursedā.
They specifically say you canāt deduct even if the employer doesnāt reimburse.
āEmployees canāt deduct this cost even if their employer doesnāt reimburse the employee for using their own car.ā
You canāt deduct housing for a garage sale as you claimed.
Your own link says that I can, especially when you get around to acknowledging that the garage sale was just one small business activity of the whole business I described. I included āonline retailā as an additional business activity specifically because I thought you would have a problem with the garage sale alone. Iāve already addressed your āgarage saleā concerns; I addressed them before you raised them. Your own link says I can deduct from my housing costs the percentage of the house I use for business purposes. It specifically says I can use any āreasonable method that accurately reflects your business-use percentageā to make that determination.
They specifically say you canāt deduct even if the employer doesnāt reimburse.
The IRS basically acts as though your regular pay specifically includes reimbursement for your regular commute. Your regular commute is already paid for with your pay, which is why you canāt claim it. The pay you negotiate with your W2 employer already includes (but does not specifically itemize) reimbursement for your regular commute. That is why you donāt get to separately deduct it.
Your regular pay does not cover atypical travel. If you are temporarily forced to drive 5 miles further to a different job site, you can claim that additional 5 miles. Compensation for that additional mileage is not included in your regular pay. If that additional mileage is not specifically reimbursed, you can claim it, even as a W2 employee.
Companies do not offer that choice to everyone.
Then find a different company. Find three, or ten. Youāre a contractor: you provide a contracted service, not your time. You provide it to anyone you want, not just a single company. Thatās what it means to be a contractor, rather than an employee. You have the flexibility in defining exactly what business you will be doing. You donāt have to fit the narrow IRS restrictions associated with W2 employment. You operate as a business, and you are taxed as a business.
especially when you get around to acknowledging that the garage sale was just one small business activity of the whole business I described.
Read what you wrote:
"Forget all of that, hold an annual garage sale.
Now, youāre a business. You get to deduct the poster board you purchase advertising your sale. You get to deduct the balloons and price stickers.
You also get to deduct that part of your rent or mortgage that you spend on the garage where you keep your inventory. That is now your āwarehouseā, which is part of your (non-employment) business. How about your attic? The attic is part of your home. You pay mortgage/rent/taxes on that part of your home right along with every other part. I doubt you use it for anything but storage anyway. Put the crap in your attic on your lawn with a price tag once a year, and you get to deduct the part of your housing payment that goes toward your attic.
You get to deduct the cost of acquiring your inventory. That is also a business expense.
Spend an afternoon in a lawnchair while your neighbors look through your junk inventory, and you get to claim thousands of dollars in business expenses.
If youāre worried the IRS might take issue with you if you only do this once a year, you can put up an ebay, etsy, craigslist, or marketplace listing, and it becomes a year-round operation."
You posted what the IRS could classify as fraud and then added āIf you are worriedā¦ā as an addendum.
Creating an ebay account does not allow you to deduct your rent. You need to sell regularly as a business to qualify. Only the portion of the space used exclusively for business is deductible.
So we have everything that isnāt profit for a business is taxed vs everything that isnāt business related for a taxpayer is taxed. It hasnāt changed the OPās statement at all. If a business needs an office to operate its completely tax deductible but the bedroom of your house where you need to sleep isnāt tax deductible.
The IRS basically acts as though your regular pay s
āActsā is your opinion. I specifically quoted the IRS publication where they said that isnāt true.
The pay you negotiate with your W2 employer already includes
The IRS said they specifically do not consider it is included.
Then find a different company.
People are forced through from their birth lottery (intelligence and family wealth) into a system that dictates the rules. Finding the perfect job is often impossible because the choice isnāt there.
Small penalty is when you make a mistake. Gigantic deductions with no income would have them charging you with tax fraud. The lawyer fees to defend yourself would be worse than the penalties.
Companies like Amazon showed losses a decade because they had income from investors. So they had income, it was only that the ābusinessā side of the business was unprofitable.
You canāt get away with deducting your mortgage as a business express from a unprofitable garage sale. Certainly not year after year.
So we are back to, ājust buy a house if you canāt afford rent.ā
Tax avoidance schemes isnāt the argument.
Tax fraud would be claiming deductions for expenses that were never incurred. The expense of ārentā was incurred. The expense of āposterboardā was incurred. The expense of āballoonsā was incurred. Using your attic for something other than storing items you retail in your online store and garage sale would turn your claim into fraud, but I never suggested you should do anything like that. That you attempted to sell everything in your attic indicates it was not used for personal use. They may not allow you to claim it as a business expense, but they canāt argue fraud unless you used it for personal use despite claiming business. So donāt do that. Donāt use it for personal use when you claim it as a business use.
I didnāt say deduct your entire mortgage. You canāt do that, unless you use the entire home exclusively for business. But you certainly can deduct a part of your mortgage, a part proportional to the amount of your house you use exclusively for business.
What are you talking about? That doesnāt make any sense whatsoever, and it certainly doesnāt arise from my arguments.
Look, youāre entering into this from the assumption that Iām suggesting you defraud the government. That is completely untrue. What I am saying is that ābusinessā is a much broader category than you seem to think. A garage sale can certainly be a business activity. Re-selling merchandise online can certainly be a business activity. There is no explicitly defined line on how many business activities you need to perform, nor a explicit time period in which you need to perform them in order to consider yourself a business. As long as you approach it with the intention of (eventually) becoming profitable - even if you canāt figure out how to do that right now - it is a business, and you are entitled to claim it as such.
It is the epitome of foolishness to conduct business activities without declaring them to be ābusinessā.
You arenāt even googling before making shit up now.
https://gordonlaw.com/learn/taking-too-many-deductions/#%3A~%3Atext=Sometimes+called+āpadding%2Cā+typical+overstating+deductions+tactics+include%2Ccharge+parties+who+overstate+deductions+with+tax+fraud.
Iām entering this from the assumption that you are steering the argument into something completely unrelated because you were proven wrong.
IT DOESNāT MATTER IF YOU CAN LEGALLY DODGE TAXES BY RUNNING A BUSINESS. THE OP STATED THAT W2 EMPLOYEES DONāT GET THE DEDUCTIONS OF A BUSINESS.
Dude. You are clearly not understanding me. My statement - that you specifically quoted above - summarizes each and every point your link makes. You act like youāre disagreeing with me, but youāre supporting points Iāve already made. The disagreement you are having on this issue is entirely within your own head.
For example, from your link:
My previous statement (Emphasis added):
Your link is just quantifying the penalties for ignoring my advice. Donāt āerroneously claim a home office or other deductionā. Go ahead and claim them, just make sure your claim isnāt erroneous. You are perfectly entitled to make a valid claim.
That might just be a piss-poor assumption. You should probably go back and see if that assumption is actually justified. (Narrator: It wasnāt.)
This would only be a valid statement if ābeing a W2 employeeā precluded the individual from also running their own business. As the employee is not precluded from running a business, the W2 employee can get the deductions of running a business. You have no grounds to say that they canāt get the deductions of a business, when they can, in fact, get the deductions of a business simply by operating as a business.
Perhaps it would be useful to show you that a business is not always entitled to deduct something. For example, where a business (subcontractor) is hired by another business (prime contractor) and that prime contractor provides various direct compensation to the sub, the sub cannot deduct the expense in question. The subcontractor is, effectively, an employee of the prime contractor, even though both are businesses. Expenses made by the prime cannot be deducted by the sub. Remember that.
If the prime contractor provides eye protection and other PPE to the subcontractor, the subcontractor cannot deduct that PPE as a business expense. If the prime contractor provides transportation to and from the main job site, the subcontractor cannot claim transportation costs.
When you cannot claim your commute costs as a W2 employee, it is because the IRS requires those costs to be included in your negotiated direct compensation with your employer. Your pay specifically includes compensation for your normal commute. You are āreimbursedā for your normal commute costs, and donāt get to claim them yourself.
As a W2 employee, you can claim transportation costs to other job sites unless you are specifically reimbursed for your travel to those other job sites. If you are reimbursed, you donāt also get to claim it. Your employer gets to claim that reimbursement as a deductible expense.
If you donāt like that, donāt work as a W2 employee. Work as a contractor: a business. A contractor is allowed to deduct the expense of all non-reimbursed transportation costs, and is not expected or required to demand explicit reimbursement for transportation or other expenses in their negotiated fee.
you claimed you could deduct part of your mortgage for a garage sale.
You claimed it isnāt fraud if you can show the source.
You arenāt allowed to deduct your mortgage for a garage sale.
https://www.irs.gov/publications/p587
Fraud can be overstated deductions. Given that you arenāt allowed to deduct your mortgage for a garage sale, and you are doing it every year to offset your W2 earnings, the amount of your phony deduction could be considered fraud. You canāt deduct hobby expenses.
Thatās not the discussion and you know it.
āRent is highā you: ābuy a houseā āPolice are corruptā you: ābecome a policemanā āTax policy is unfairā you: āstart a successful businessā
I claimed that a garage sale was a business activity. I said if you didnāt think an annual garage sale was sufficient to count as a ābusinessā, you could engage in online retailing or other additional activities as well.
You absolutely are allowed to deduct the costs for that part of your home you use exclusively for business purposes. Right from your own link:
Iām beginning to get offended at the repeated insinuations that I am advocating fraud. You are looking at BUSINESS ACTIVITIES and declaring them to be fraud. Youāve adopted some sort of weird victim mentality here. You think that if ābusinessesā do it, itās permitted by the government, but if you do the exact same thing, itās fraud. Itās not.
Have you ever worked as a 1099 contractor? Have you ever had any income whatsoever that didnāt come from a W2 or capital gains? It really doesnāt seem like it. Your position on what constitutes a ābusinessā seems to be some kind of megacorporation, rather than a sole proprietorship. You seem to be under the impression that unless you can survive off the income of your business, itās not a business at all.
I never suggested overstating deductions. Your argument here is bordering on libelous.
Your own link says otherwise.
There was no phony deduction.
True, but I never suggested a hobby. I suggested a business. And I described numerous activities - not just a garage sale - that would constitute business. You consistently ignore the remainder of my argument: if you donāt think a garage sale is sufficient to constitute a ābusinessā, you can engage in online retailing and other activities as well.
Your first two points donāt arise from any of my arguments. As for the third, I never said āstart a successful businessā. Iāve said repeatedly that 30% of home businesses never show a profit. They still get to deduct their expenses. Your third observation would be better stated as āBusinesses get unfair tax breaksā : āStart a business, so you an claim the same tax breaksā
Actually, it is the entire discussion. The fact that the IRS requires your regular commute and other expenses to be included in your negotiated pay as a W2 employee means that your expenses are effectively considered āreimbursedā. Businesses donāt get to claim reimbursed expenses as deductions. If you donāt want to include such expenses in your regular pay, you can work as a 1099 contractor rather than a W2 employee.
You canāt deduct housing for a garage sale as you claimed.
They specifically say you canāt deduct even if the employer doesnāt reimburse.
āEmployees canāt deduct this cost even if their employer doesnāt reimburse the employee for using their own car.ā
https://www.irs.gov/newsroom/heres-the-411-on-who-can-deduct-car-expenses-on-their-tax-returns
So the IRS does not consider your salary as including reimbursement for transportation.
āyou can work as a 1099 contractor rather than a W2 employee.ā
Companies do not offer that choice to everyone.
Your own link says that I can, especially when you get around to acknowledging that the garage sale was just one small business activity of the whole business I described. I included āonline retailā as an additional business activity specifically because I thought you would have a problem with the garage sale alone. Iāve already addressed your āgarage saleā concerns; I addressed them before you raised them. Your own link says I can deduct from my housing costs the percentage of the house I use for business purposes. It specifically says I can use any āreasonable method that accurately reflects your business-use percentageā to make that determination.
The IRS basically acts as though your regular pay specifically includes reimbursement for your regular commute. Your regular commute is already paid for with your pay, which is why you canāt claim it. The pay you negotiate with your W2 employer already includes (but does not specifically itemize) reimbursement for your regular commute. That is why you donāt get to separately deduct it.
Your regular pay does not cover atypical travel. If you are temporarily forced to drive 5 miles further to a different job site, you can claim that additional 5 miles. Compensation for that additional mileage is not included in your regular pay. If that additional mileage is not specifically reimbursed, you can claim it, even as a W2 employee.
Then find a different company. Find three, or ten. Youāre a contractor: you provide a contracted service, not your time. You provide it to anyone you want, not just a single company. Thatās what it means to be a contractor, rather than an employee. You have the flexibility in defining exactly what business you will be doing. You donāt have to fit the narrow IRS restrictions associated with W2 employment. You operate as a business, and you are taxed as a business.
Read what you wrote:
You posted what the IRS could classify as fraud and then added āIf you are worriedā¦ā as an addendum.
Creating an ebay account does not allow you to deduct your rent. You need to sell regularly as a business to qualify. Only the portion of the space used exclusively for business is deductible.
So we have everything that isnāt profit for a business is taxed vs everything that isnāt business related for a taxpayer is taxed. It hasnāt changed the OPās statement at all. If a business needs an office to operate its completely tax deductible but the bedroom of your house where you need to sleep isnāt tax deductible.
āActsā is your opinion. I specifically quoted the IRS publication where they said that isnāt true.
The IRS said they specifically do not consider it is included.
People are forced through from their birth lottery (intelligence and family wealth) into a system that dictates the rules. Finding the perfect job is often impossible because the choice isnāt there.