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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Self-Employed Stuff/Home Office Date: 4/2/1998 2:24 AM
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[[ I left a company at the end of May. June 1 I went to work for myself. I worked out of a home
office that is 100% dedicated to the business. I went on COBRA. I entered into a consulting
agreement with a single company (not the company I used to work for), all billing/invoicing was
done through that company. November 1st I became an employee of the company that I was
consulting with. Therefore I received a 1099 for the work I did from 6/1 through 10/31 and a W-2
for the period 11/1 to 12/31. I am still on COBRA, the company has no benefit plan and I am still
working out of my house.

I am using TaxCut to prepare my taxes.

Questions:
1. When asked about home office expenses, I assume I have to complete two seperate forms, one
for each period. I also assume that the amounts for things like utilities (direct and indirect) are for
the period time for the form only, for example an indirect expense for the first form would be the
electric bill from 6/1 through 10/31. The program also asks me about insurance costs associated
with the property, can I deduct my PMI as well as my homeowners?]]

That is assuming that you qualify for the home office deduction while you are an employee. The requirements are stringent for a self-employed person. They are even MORE stringent for an employee.

As an employee, not only do you have to pass the principal place of business, meeting place, and regular/exclusive use tests, but the office MUST also be for the convenience of your employer. Which means that if you are provided an office, your home office is most likely NOT for the convenience of your employee, and would therefore not necessarily be a deductible expense. For a more complete discussion on the office in home deduction, see IRS Publication 587.

But assuming that you do qualify, you are correct in that TWO separate Forms 8829 would be required to be prepared. While you were self employed, the Form 8829 would feed into Schedule C (and potentiall be restricted by your net business income). While you are an employee, the Form 8829 would feed into your Sch A as a miscellaneous itemized deduction via Form 2106.

Finally, PMI would be an allowable insurance deduction for the office in home computations.

[[ 2. Where is the appropriate place to deduct my COBRA premium payments. Is it more beneficial
to deduct it one way, rather than another?]]

You would certainly want to deduct your COBRA insurance as "self employed insurance" paid, and deduct it on the front of your tax return (see Form 1040, line 27. The problem is that the deduction is not available for any calendar month for which you were eligible to participate in any subsidized health plan maintained by any of your employers or your spouse's employer. A COBRA payment, in an of itself, does not necessarily mean that your insurance is "subsidized, but it is something that you'll want to check out with your prior benefits people.

[[3. Is there anything else that I should be looking for to help with increasing deductions.]]

Check out IRS Publication 334 for additional information regarding your self employemnt days.

TMF Taxes
Roy

SPECIAL NOTE: I try to answer as many questions as I can each week, and I generally select those that have not been asked before. If you don't get a detailed answer to your question, it is probably because my time is so limited during tax season, or because it has already been asked and answered in this folder in the past, or because it has been discussed in the Taxes Frequently Asked Questions area. In order to visit the Taxes FAQ area, go to the Fool's School area (http://www.fool.com/school.htm) and check out "Other Features" in the list box, OR you can jump directly to the Taxes FAQ area (http://www.fool.com/school/taxes/taxes.htm). Additionally, if any references were made to the IRS Web Site, you can get there by pointing your web browser to (http://www.irs.ustreas.gov)
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