Create a company for taxes?

[ComponY]

My boss was sort of explaining a few things to me. He said I could theoretically make a company (and say I work from home to run it). I need at least 25% of my place to be considered a work place. From there, I can pay my rent under my company name, and everything else I need, then write it off at the end of the year.

What do you guys think about this?

I'm 21 years old, no wife, and no kids. I claim 1 during the year.

[disneysteve]

Yes, if you have a home-based business, you can deduct a portion of your home expenses such as rent, utilities, maintenance, etc. It's important to keep meticulous records if you do that. It's also important that the work space be dedicated to work. So if you are doing stuff at your kitchen table, that won't fly. But if you have a room that is strictly for the business, you can claim that space.

What type of business do you have?

[Singuy]

Do note that if it's a home business, you cannot claim 100% of your rent money as a deductible. It is based on a squareft calculation and usually the deduction is not all that great since we did it for our house last year.

According to the simplified version of the deduction, it's $5/squareft/year. It's something but not worth the hassle of getting a LLC/pay the yearly report/getting a business license and renewing it yearly.

https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction

[MakeAStash]

You must also be able to demonstrate a profit motive, and after a few startup years, show profits in at least 3 of every 5 years. Without that the IRS can consider your business to be a hobby and deny your deductions.

[TexasHusker]

Also, a friend of mine who works for the IRS here told me that home business deductions are big red flags for the IRS to audit. He was so emphatic that I've never claimed a single penny of home business deduction. Not that I'm worried about an audit - I just don't want to have to sell the IRS that the purchase of a certain lamp was necessary, Big Chief tablets, etc.

[scfr]

Do you have a legitimate, for-profit business that you run from your home?

Or is your boss suggesting that you establish a pseudo-business that you create solely to write off some personal expenses? If that's the case, all I can say is DON'T!

[thestrongprofessional]

Starting a home business

Hey scfr,

I think you're on the right track. Don't get distracted by your friends and family. Go towards your goal and accomplish it. Good luck.

Raphael

[frugal saver]

Home-run businesses are absolutely the best path to an audit, since they're the easiest to scam. If you have a legitimate business with common expenses to that business (i.e. home-based tax preparer, etc.) you're normally ok, but "theoretically make a company" is a ticket to an allegation of tax fraud.

[Fishindude77]

I do think most folks should have some type of a business of their own outside of their daily grind job, working for the other guy, but it should be a legitimate business with the goal of making some money. Your boss's idea sounds like a scam, not a legitimate business.