Missed Home Office and Mileage Deduction for Orthodontist
Recently we had a new Orthodontist client join our Dental Tax Savings Program. While doing our discovery call to see where we could help reduce his taxes, we realized that the dentist had not been capitalizing on the home office deduction for the past several years since opening his practice. When we asked why, the client said his prior CPA advised him that he could not deduct the home office since he had a practice and all of the work including admin work was done at his office by him or his staff.
Our Viewpoint on why the previous CPA was incorrect
We disagreed and here is our logic.
The dentist ran his office payroll from home. He also reviewed treatment plans, notes for patient records, reviewed and answered emails from home.
Having staff at his practice location does not disqualify him from the home office deduction. The dentist can simply have his office as the location where production is done, patients are seen and his home office can be his administrative office. This strategy not only allows him to take the home office deduction, but allows the client to unlock the mileage deduction of driving from home to his practice daily.
Why? Well because typically driving to work or your business is not deductible. But if you setup your home to be an administrative office, you now have two office locations and driving from one office to the other office is tax deductible mileage.
Requirements
The IRS does have some specific requirements for your home to count as a home office, including:
- Documentation
- Regular use of the home as an administrative office
- Proof of use
- Proper structuring of the home office. Example if you are a S Corp you use the quarterly accountable plan vs if you are a sole prop or a partnership you would take the deduction on your personal return.
The Results
We were able to identify $16,000 in deductions from property taxes, home mortgage interest, mileage deductions, home internet, phone, home association fees and more.
Take Away
Make sure to speak to your tax professional about maximizing your tax structure. Also ensure the right home office and mileage strategies are used based on your structure (S Corp/Partnership/Disregarded Entity). If you are deducting your home office and mileage, make sure you are doing it the right way and have taken the steps needed for the IRS to recognize your home as the administrative office for your business, separate from your practice location.
Additionally if you are a 1099 contractor, you can also use this strategy. If you are part of our Dental Tax Savings Program, we include this strategy along with an IRS acceptable Accountable Plan document as part of our year end tax planning meeting.
For questions please feel free to contact one of our Dental CPA team members by calling 713-396-3172 or emailing omar@virjeeconsulting.com
Disclaimer- Advise in this blog should not be taken as tax advise. Each person’s tax circumstance is different and unique. Using these strategies without full knowledge of the current IRS rules and regulations regarding the specific items discussed can result in heavy fines, penalties and interest. Please discuss the guidance in this document with a tax expert before making any decisions.
