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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 121585  
Subject: Re: Self Employed w/no Income - IRA? Date: 4/8/1998 9:41 AM
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[[My wife is a self employed writer. This year, expenses exceeded income. Two questions:

We're using Section 179 for several pieces of equipment, and she also qualifies for a home office
deduction. From what I have read the HO deduction can't take her income negative, and my
understanding is that the rest carries forward to '98. So she's ended with a net income of zero.]]

That's correct. Your HO deductions will be limited to taxable income...as will your section 179 election.

[[ Is there any benefit to using standard depreciation instead of 179 on some of the equipment and
taking the full home office deduction this year? Either way, we are essentially carrying part of this
years deduction into next year (or future years in the case of depreciation).]]

That will really depend upon what the income from the business looks like next year. If you expect a larger income year, you can take all of your carryover HO deductions immediatly against your 1998 Sch C income. But once you begin to depreciate the office equipment (over either a 5 or 7 year period), you are stuck with that length of time. So if you believe that income will rise in 1998, you might consider the HO carryover for 1997, and use it up in 1998. If you don't believe that income will increase to an appropriate amount in 1998 (or even 1999), the decision becomes a little more difficult to make.

[[ Second, she's had a SEP-IRA in previous years. This year, though, 15% of nothing is nothing. Can
she open a standard non-deductible IRA for '97 even if she had a net income of zero (with the
intent of rolling it into a ROTH)? Does she qualify for a spousal non-deductible IRA? I have a
401K plan at work and we don't qualify for a deductable IRA.]]

If here earned income is zero, the SEP plan is out. But for the regular IRA, she would be considered a non-working spouse, and as long as YOU had $2k of earned income, you could make a contribution to an IRA for 1997.

TMF Taxes
Roy
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