Job offer? How to crunch these numbers.

[jIM_Ohio]

My current household gross income is 110k from two jobs (wife and mine).

I interviewed earlier in the week for a position. It is similar to job I do now (designing training material). Pay rate would be close to 110k for this position.

Position has close to 75-100% travel. I must bill 50 hours per week to the client I am supporting. Some of the billing can come from work out of a home office, other billing would be when I am at client site.

When at company site, the travel reimbursement is a little different. Instead of reimbursing for a hotel and a rental car, the company provides a stipend to cover the expense. If I chose to buy a car and buy a condo in the city (3000-4000 miles from where I live now) where my client is, I could do that if the stipend covers it.

I need help with the taxes side of this:

1) Is that stipend taxed as income?
2) I know SS is on first 93k of earned income (per individual) at 3.5% (or something similar). I assume if I made 110k gross, dollars 93001-110000 do not get the 3.5% SS tax?
3) I know there would be tax benefits of working from home (writing off home office and utilities to support this). Is the calculation 25% of all utilities? I don't think so...

House is 3200 sq ft. Room I would convert to an office is about 400 square feet. I assume I would get 25% of the 400/3200=25% of 1/12 of my ulitilies back at end of year?

Utilities- I could write off 1/48 of my
a) heat
b) water
c) trash
d) mortgage payment?
e) anything else?

Thoughts? Am I missing anything.

FYI if I took this job, wife would stop working.

[sweeps]

Before getting to the financials, how does your wife feel about you traveling that much (especially now with the twins)?

[noppenbd]

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.

[jIM_Ohio]

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.

So if my AGI for 2007 was around 90k, then I need 2% of 90k ($1800) or more to get deductions?

Electric is $3600/year (300/mo), 1/8 of which is $450.
Mortgage interest is around 20k per year, 1/8 of which is $2500.
Property taxes are $5200/year, 1/8 which is $650.

Appears I get $3600- does this reduce my taxable income or do something else?

[noppenbd]

So if my AGI for 2007 was around 90k, then I need 2% of 90k ($1800) or more to get deductions?

Electric is $3600/year (300/mo), 1/8 of which is $450.
Mortgage interest is around 20k per year, 1/8 of which is $2500.
Property taxes are $5200/year, 1/8 which is $650.

Appears I get $3600- does this reduce my taxable income or do something else?

Don't forget home insurance. HO deductions fall under line 21 of schedule A as part of Misc deductions: http://www.irs.gov/pub/irs-pdf/f1040sab.pdf

Misc deductions also includes tax preparation software or fees.

So the $3600 or so would be an additional itemized deduction, reducing taxable income.

[sweeps]

But you already get a deduction for mortgage interest and property taxes... Isn't that a wash?

[noppenbd]

But you already get a deduction for mortgage interest and property taxes... Isn't that a wash?

No, because you are still getting the full deduction for mortgage interest paid & property taxes in addition to the prorated deduction as a misc job-related expense. So they show up twice in your deductions.

[sweeps]

Fill out the worksheet on page 25. http://www.irs.gov/pub/irs-pdf/p587.pdf

[sweeps]

No, because you are still getting the full deduction for mortgage interest paid & property taxes in addition to the prorated deduction as a misc job-related expense. So they show up twice in your deductions.

So let's say half my house is dedicated to a home office. I can take the full deduction for mortgage interest and property taxes, and then deduct half of it again under misc deductions?

[sweeps]

Don't Double Dip!
Another misconception about the office-in-home deduction is that you can claim your property taxes and mortgage interest twice: once on Schedule A (with your itemized deductions) and again on Form 8829 (for your home office expenses). Wrongo!! Mortgage interest and property tax deductions claimed as a home office expense can't be claimed again on Schedule A.

Source

[jIM_Ohio]

Fill out the worksheet on page 25. http://www.irs.gov/pub/irs-pdf/p587.pdf

can anyone decipher this portion of the pdf for me?

Gross income from business . . . . . . . . . . . . . . . . . . . . . $6,000
and real estate taxes (20%) . . . . . . . . . . . . . . . . . . . . 3,000
Business expenses not related to the use of your home (100%)
(business phone, supplies, and depreciation on equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Deduction limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000
Minus other expenses allocable to business use of home:
Maintenance, insurance, and utilities (20%) . . . . . . . . . . 800
Depreciation allowed (20% = $1,600 allowable, but
subject to balance of deduction limit) . . . . . . . . . . . . . . 200
Other expenses up to the deduction limit . . . . . . . . . . . . . $1,000
Depreciation carryover to 2008 ($1,600 − $200) (subject to deduction limit in 2008) . . . . . . . . . . . . . . . . . . . . . . . $1,400

[noppenbd]

Source

Wow, I guess my accountant screwed up in 2003. Don't tell the IRS. Sorry about the misinformation!

[LivingAlmostLarge]

I heard the stipend is income. At least our friend's stipend as a consultant is. Please check with a CPA. But it's all income. Especially if they report paying you $90k + $3k/month in travel expenses.

[MonkeyMama]

I heard the stipend is income. At least our friend's stipend as a consultant is. Please check with a CPA. But it's all income. Especially if they report paying you $90k + $3k/month in travel expenses.

Reading this thread is giving me a headache. I have to agree that I would speak with a CPA.

Not that you can't read up on all this yourself, but it gets real complicated real fast.

Most of the info above is correct.

Stipends, if you track your expenses and they are equal to more than your stipend, generally they are tax-free. Generally if you submit receipts for reimbursement, it is tax free. If you just get a set amount, it isn't. But you can keep an accounting of it and probably be on safe ground. IT just gets complicated.

However, you can't take the same deductions you are reimbursed for (As tax deductions) and then consider the stipend as tax free. That's another double dip.

Likewise, the thing about home office deduction is you depreciate a portion of your home (& you are talking quite a large percentage of your home). When you sell the home there are tax consequences there.

Finally, you completely lose miscellaneous itemized deductions if you hit AMT. You have 2 kids, talking higher income, and are talking about multiple properties. That is a pretty sure recipe for AMT. Your specific situation may not warrant AMT worries, but had to throw out an example of just what complicated ground you are getting into. How much this really matters is at the whim of the legislature and their wonderful last minute AMT patches. I'll get back to you in December on that.

[LuxLiving]

Let me understand better - the travel would all be to one city? If the wife quit work why not move to that city?

So, if I'm reading this correctly and it is all to just one city that the travel is in - then you are planning to keep your current home & put in a home office there, and buy a condo in the travel city. Could you also claim the deductions for a second office in the condo?