Good point! But how would you document that for the IRS? My brother bought a car in Oregon (no sales tax) but had to pay use tax when he registered it in California.

The receipt or documentation from your state's DMV or revenue department when you paid the use tax serves as your documentation. Usually when you register an out-of-state vehicle, they give you a receipt showing the use tax paid - that's what you'd keep for your records. In your brother's California case, the CA DMV would have provided documentation when he registered the vehicle and paid the use tax. That's what he'd need to keep to substantiate the deduction if he itemizes.

That's not right. The full sales tax is deductible in the year of purchase even if you financed the car. The dealer paid the full tax to the state at the time of purchase, so you get the full deduction.

Do you have any documentation on this approach? I've never heard of being able to include coffee as part of home office expenses and want to make sure I don't get audited.

I don't have official documentation, just what my CPA advised me. The key is not to list "coffee" as a line item but to incorporate reasonable office supplies/consumables into your overall home office deduction. The regular home office deduction already accounts for things like this. My approach is just making sure that my home office is legitimate (dedicated space, regular use for business, etc.) and then taking the standard deduction for it. I don't specifically break out coffee as a separate expense - it's just considered part of the overall home office usage.

This is really good advice that people overlook. What was your experience with the audit like? Did they focus on small deductions or bigger issues?

Are you in California by any chance? That $800 minimum tax is brutal. Do you think the liability protection is worth that annual fee for a small side business making maybe $15k a year?

Yep, California's $800 LLC tax is exactly what I was referring to! For a business only making $15k annually, I personally don't think the LLC is worth it unless you're in a high-liability industry. That $800 represents over 5% of your gross revenue before any other expenses. Many small business owners don't realize they can get decent liability protection through good business insurance policies without the LLC structure and fees. A general liability policy might only cost $500-700 annually compared to the $800 state fee plus LLC formation costs.

You can have a single LLC that covers multiple business activities if you want. On your Schedule C, you'd either need to: 1) file separate Schedule Cs for each substantially different business activity or 2) use the primary business code that represents your main activity. For tax purposes, it's more about properly categorizing and reporting the different income streams than about having multiple LLCs.

Thank you for mentioning potential refunds! I hadn't even considered that possibility. Do you know if receiving a refund for one year could offset what I might owe for other years automatically? And what exactly is a CP2000 notice? Is that something I should be worried about?

The IRS will generally apply any refunds to outstanding tax debts automatically. So yes, if you're due a refund for 2022 but owe for 2018, they'll typically apply that refund to reduce your 2018 balance. This happens automatically in most cases. A CP2000 is a notice of proposed adjustment to your tax return. It basically means "we think you didn't report all your income." It's not an audit, but it means the IRS identified a discrepancy between what you reported and what they have on record from W-2s, 1099s, etc. Not something to panic about, but you'll need to either agree with their assessment or provide documentation showing why they're incorrect.

Plus if you lived in different states during those years you might need to file partial year returns for each state! I had to file in 3 different states for one tax year when I moved around for work. Total nightmare.

2 I'm confused about the principal place of business requirement. I'm a graphic designer and I do most of my actual design work in my home office, but I meet clients at coffee shops and sometimes work at the library when I need a change of scenery. Does that disqualify me?

13 You're still likely eligible for the deduction. The key is where you perform the primary activities of your business. For a graphic designer, if your actual design work is primarily done in your home office, that would qualify as your principal place of business even if you meet clients elsewhere or occasionally work in different locations. The IRS looks at factors like where you spend the most time working and where the most important aspects of your business are performed. Since the core creative work of graphic design happens in your home office, that should satisfy the principal place of business requirement.

10 The home office deduction goes on your Schedule C (Profit or Loss from Business) if you're self-employed. The software should automatically calculate it based on the information you provide about your home office. There's no separate form specifically for the home office deduction itself. When you input your business expenses in the software, there should be a section specifically for home office. The software will ask if you want to use simplified or regular method, then either ask for square footage (simplified) or ask for all your home expenses and the percentage used for business (regular method).