I definitely agree with sweeps that the primary concern would be the travel. If you and your wife are on board with that...
1) Not sure, but probably if in the form of a stipend check. I think if it is an accountable plan (meaning you are reimbursed for specific items on a case-by-case basis) then it would not be taxable.
2) SS + Medicare is 7.65% (each, employer also pays 7.65%) up to $102k for 2008.
3) Indirect expenses are utilities, mortgage interest (not principal paymts), real estate taxes & insurance, maintenance, trash removal. Phone line is usually not unless you have a dedicated office phone. The amount deductible is prorated by the fraction of square footage of the HO vs the house (1/8 in your case).
Direct expenses are anything that is just for the office (office furniture, supplies). These are not pro-rated by square footage.
However, unless you are self-employed, all of these expenses fall under the "Misc" category, meaning the amount you can deduct is reduced by 2% of AGI. If total Misc expenses are less than 2% of AGI then deduction is 0.
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