June highlights from The MWE Advisor newsletter include: reclassifying business expenses as constructive dividends, considering taxes before converting your home to a rental property, and unlocking the biggest possible deduction for a home office.
Reclassifying Business Expenses as Constructive Dividends
Corporations that make payments to shareholders beware: The IRS may challenge deductions claimed for certain business expenses and other related-party transactions. An inquiry could lead to reclassification of certain payments as constructive dividends, which could have unfavorable tax consequences for the company and its shareholders. Here’s a recent Tax Court case that highlights this contentious issue.
Converting Your Home to a Rental Property
It’s popular for property owners in certain markets to rent out their former residences. Doing so generates income that’s largely offset by tax deductions and allows you to potentially participate in the property’s future appreciation in value. Before making the home-to-rental conversion, however, it’s important to understand the special — and sometimes confusing — tax rules that apply when the property is rented and eventually sold.
Unlock the Biggest Deduction for a Home Office
Do you work from home? You might be able to claim a home office deduction if part of your home is used for business purposes. Thanks to a tax law change in 2013, there are now two methods for claiming this deduction: actual expenses vs. the simplified method. Here’s how the deduction works, including specific requirements and types of costs that may qualify for the deduction.