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Something important nobody's mentioned yet - make sure you're calculating the loss correctly. It's not just what it costs to replace the stolen/damaged items. For tax purposes, casualty loss is the lesser of: 1) Your adjusted basis in the property (usually what you paid plus improvements) 2) The decrease in fair market value caused by the casualty/theft So if you bought a couch 5 years ago for $1000 that's now only worth $400 (before theft), your casualty loss would be $400, not $1000. This catches a lot of people off guard.
So does that mean if something old gets stolen, you basically get no deduction because it was already depreciated in value? Like if thieves take a 10-year-old TV that's practically worthless now but costs $500 to replace?
That's exactly right - and it's why casualty losses often end up being less than people expect. If your 10-year-old TV had depreciated to a fair market value of only $50 before it was stolen, that's your deduction amount (not the $500 replacement cost). However, for the business/rental portion of your property, you've likely been taking depreciation deductions already, so your adjusted basis should align more closely with the current value. This is actually one advantage of the business portion of casualty losses - they're generally calculated based on the depreciated value that you've been reporting for tax purposes all along.
Random but important tip: if your deductible exceeds your loss so you don't file an insurance claim, still document EVERYTHING as if you were filing. Take dated photos, get written repair estimates, and keep all receipts. The IRS is super picky about casualty loss documentation. I got audited for a rental property casualty loss and they wanted proof I tried to recover through insurance first before claiming the tax deduction. Luckily I had emails with my insurance agent discussing the claim and how it was below my deductible.
Going back to your original question about your CPA - I'd recommend interviewing a few other accountants before tax season starts. I've found that some CPAs get complacent with long-term clients or are just too overworked to give proper attention. When I switched to a new CPA two years ago, she found nearly $4k in tax savings my previous guy had missed over the years. One tip: ask potential CPAs specific questions about your situation (self-employment tax, home office, medical expenses) and see how detailed their answers are. The good ones will take time to explain rather than dismissing your questions.
Thank you for this advice. I've been hesitant to "break up" with my CPA because we have history, but you're right that I should at least talk to other professionals. Do you have any suggestions for the best time to interview new CPAs? I'm guessing they're all super busy during actual tax season.
November to early December is the ideal time to interview new CPAs. Most have wrapped up extension filings from the previous season but haven't yet been swamped with year-end planning and new tax season work. They'll have more time to thoroughly review your situation and answer questions. October can also work, but by January they're starting to get busy, and by February they're usually not taking new clients until after April 15th. If you wait until actual tax season, you'll likely end up with whoever has availability, not necessarily the best fit for your needs.
Has your CPA explained WHY they don't think you need to make quarterly payments? There are some exceptions. For instance, if your withholding from your W-2 job covers at least 90% of your total tax liability or 100% of your previous year's tax (110% if your AGI was over $150k), you might be exempt from making estimated payments despite the self-employment income.
This is really important! My wife and I had a similar situation, but our CPA had us increase our W-2 withholding instead of making quarterly payments. It accomplished the same thing (meeting our tax obligations) but with less paperwork. Worth asking if that's what your CPA was thinking.
Just a heads up from someone who went through this last year - back taxes have to be mailed in paper form! I tried to e-file my 2021 and 2022 returns through TurboTax in January and kept getting errors. Turns out once the e-file deadline has passed for a tax year, you can only submit paper returns. Also, send them via certified mail so you have proof the IRS received them! I learned this the hard way when one of my returns got "lost" and I had no way to prove I had sent it.
How long did it take to get your refund after mailing in the paper returns? And did you mail them all together or separately?
It took about 12 weeks to get my refund after mailing in the paper returns. That's much longer than the typical 21 days for e-filing, but expected for paper returns. The IRS is still working through backlogs. I mailed each tax year in separate envelopes to different processing centers. The IRS has different mailing addresses depending on your state and the tax year, so definitely check the IRS website for the correct address for each return. Don't bundle them together - each year needs to go to the specific processing center for that tax year.
Don't forget that if you're owed a refund, you only have 3 years to claim it! So for your 2021 taxes, you'd need to file by April 15, 2025 or you lose that refund forever. If you OWE money instead, there's no time limit for the IRS to collect, but penalties and interest keep accruing the longer you wait to file. I back filed 4 years of taxes in 2023 and the process wasn't as bad as I expected!
What software did you use for your back filing? I'm trying to figure out the most affordable option since I have to do multiple years.
I may be missing something here, but I think another option might be to look at the regular home office deduction rather than the Augusta Rule. If you're using a space exclusively and regularly for business storage, you can deduct that percentage of your home expenses (mortgage interest, utilities, etc.). For example, if the storage area is 10% of your home's square footage, you can deduct 10% of those expenses. This might actually be more beneficial than trying to charge your business a "rental fee" under Section 280A(g).
Thanks for this perspective! One question though - does the storage area need to be COMPLETELY exclusive to inventory? Like, I keep most of my supplies in plastic bins that are stacked against one wall of the spare bedroom. The room is maybe 200 sq ft total, but the storage probably only takes up about 40 sq ft. Can I deduct just that portion?
The general rule is that the space needs to be used exclusively for business, but there's a special exception for inventory storage. If you're selling products as your business (which you are), and your home is the only fixed location of that business, you can deduct the space used for inventory storage even if it's part of a room. In your specific case, you could potentially deduct the 40 sq ft used for storage, not the entire 200 sq ft room. You'd calculate what percentage that 40 sq ft is of your entire home's square footage. So if your home is 2,000 sq ft total, you'd be deducting 2% (40 รท 2,000) of your eligible home expenses.
The confusion here seems to be mixing up two different tax concepts. The Augusta Rule (280A(g)) lets you rent your WHOLE home to your business for up to 14 days tax-free. This is great for business meetings, photo shoots, training events, etc. For ONGOING storage, you want the home office deduction specifically for inventory storage (different part of tax code). You can claim the actual space used even if the room isn't exclusively for business. I made this mistake and got flagged for audit! Don't try to use the Augusta Rule for year-round storage - it won't fly with the IRS.
Can you do both in the same year though? Like use regular home office deduction for the storage space, but also use Augusta Rule to rent your living room to your business for a few days for meetings?
Levi Parker
I completed a voluntary disclosure in Pennsylvania last year. I did it myself without a CPA or lawyer, but I'm not sure I'd recommend that approach to everyone. The process took about 4 months from start to finish. They required me to provide: - Explanation letter detailing why I hadn't filed previously - Completed tax returns for the lookback period (3 years) - Profit and loss statements for my business - Calculation worksheet showing how I determined the tax, interest, and penalties I didn't send a check with my initial application - that came later after we agreed on the final amount. The state actually adjusted my calculations slightly before accepting my offer.
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Libby Hassan
โขDid you do the anonymous inquiry first or did you just identify yourself from the beginning? I'm worried about revealing my info if they might reject me.
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Levi Parker
โขI went straight to identifying myself, which was probably my biggest mistake. If I could do it over, I would have either used a representative for an anonymous inquiry or at least called anonymously to discuss my situation before revealing my identity. The state was reasonable in my case, but I've heard stories where the disclosure was rejected and then the taxpayer was fully exposed. So approaching it anonymously first is definitely the safer route if you have any concerns about eligibility.
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Hunter Hampton
Just wanted to add that the state actually matters A LOT for voluntary disclosure programs. California's is totally different from like Texas or Florida. What state are you dealing with? That would help us give more specific advice.
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KingKongZilla
โขSorry for not mentioning it! I'm dealing with Illinois. Anyone have experience with their program specifically?
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Sofia Peรฑa
โขIllinois has a pretty straightforward VDA program compared to some states. I went through it about 2 years ago. They required 4 years of back filings, and they were pretty reasonable about accepting my calculations as long as I showed my methodology. The key with Illinois is to be extremely clear about why you failed to file previously - they want to see that it wasn't intentional tax avoidance. They also responded much more quickly than I expected - the whole process took about 10 weeks from submission to acceptance.
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