Help! Question about Home Office for Securities Trading LLC

[vinky5 1]

My taxes have been getting more and more complicated so I trialed a new CPA that advertises that he specializes in Trading Taxes.  He is telling me that I can not actualize any of my Home Office Deduction.  For 2021, with my single member LLC, I had a net business income from Securities Trading of around 40k from stock and options trading which he put on Schedule D and not on Schedule C.  I had business expenses of 9k and home office expenses including carry overs since 2017 of 8k.  He deducted the 9k business expenses from my income but is carrying over the Home Office Expenses to 2022.  He says that Securities Traders under single member LLCs never actualize their Home Office Deductions every year and they just keep carrying them over although I had a net profit of 40k minus 9k expenses.  Is this correct?  I spent several hours trying to research it and a lot of things that popped up were from CPA website articles and they all seem to vaguely indicate that Home Office Expense can indeed be realized each year with securities trading through an LLC.  

Does anyone know about this that can help me?  The extension deadline is fast approaching and I don't know what resource I can use or ask to get the answer.

[Ringandpinion 1,657]

7 hours ago, vinky5 said:

My taxes have been getting more and more complicated so I trialed a new CPA that advertises that he specializes in Trading Taxes.  He is telling me that I can not actualize any of my Home Office Deduction.  For 2021, with my single member LLC, I had a net business income from Securities Trading of around 40k from stock and options trading which he put on Schedule D and not on Schedule C.  I had business expenses of 9k and home office expenses including carry overs since 2017 of 8k.  He deducted the 9k business expenses from my income but is carrying over the Home Office Expenses to 2022.  He says that Securities Traders under single member LLCs never actualize their Home Office Deductions every year and they just keep carrying them over although I had a net profit of 40k minus 9k expenses.  Is this correct?  I spent several hours trying to research it and a lot of things that popped up were from CPA website articles and they all seem to vaguely indicate that Home Office Expense can indeed be realized each year with securities trading through an LLC.  

Does anyone know about this that can help me?  The extension deadline is fast approaching and I don't know what resource I can use or ask to get the answer.

I stayed out of an LLC for trading for many of the same reasons and just did a sole proprietorship and set up as an "active trader".  Keeping all that together on Schedule C's with my small farm allows me a lot more flexibility.  Also, I wasn't sure that trading as an LLC, even a "pass through"  LLC wouldn't set me up for the much larger fees that professional traders pay (which always seemed weird because I thought they paid less).  The main reason I'm responding is something I learned a long time ago that still holds true - there are several things the men in black at the IRS will use as red flags for audits, home office has always been one of those near the top of the list.  There are so many deductions available to small businesses (especially if you are a micro business filing on a Sched. C), that I've always avoided the home office deduction.  The rules for home office are a catch phrase for we want to audit you.  If you put an exercise machine, or maybe park a bicycle in there, anything not related to the business in the same room, gives them an excuse to audit after you've been flagged because of using the deduction.

Another thing I learned from a fat old cigar smoking neurosurgeon (great guy, but the fat and cigars and whiskey ultimately killed him) many years ago, don't use a CPA, if you must pay a professional, use a tax attorney.  This saved my posterior twice when I had my business.  The auditors from the IRS (or any government taxing authority) will likely be very unknowledgeable (is that a word?) freshly minted accountants and part of the expense of facing the audit will be educating them for their new job, no kidding, that is how they train their auditors, on your nickel.  With a tax attorney, you come in the door immediately with bigger guns and eliminate all the fakery (yep, they'll lie to you as quick as a cop on an investigation) and game playing and they'll have to put up or shut up.

Just my two cents, my company was audited by the IRS and the Texas Comptroller (for sales taxes) at different times.  In both cases, the audits cost me less than $5K for the attorney and no penalties.

[vinky5 1]

Thanks for the words of wisdom!!  Do you have any recommendations of good Tax Attorneys that help with Tax Planning and Preparation?

 

About audits, see what I wrote to my old CPA this morning below after he responded to my original Q posted above!

Also, forgot to update you.  About that 2017 audit, the IRS is settling for basically the entire amount and reimbursing me some shitty rate (eg 120/hr when actual fees were like triple that) for attorney fees.  Nevertheless it feels good that we “won”. I officially hate the IRS now - during this Audit the IRS and the Taxpayer Advocate Office were incompetent and unprofessional.  It could have been avoided if they just actually read what we sent and/or talked to you or me after we requested it multiple times.  I’m sure covid did not help their operations during the time but they didn’t show me a single ounce of sympathy at any stage of the audit so I don’t have any sympathy for how covid affected them.  Anyway thought you would like the update on our Audit from that 2017 Return.  I still haven’t gotten the $$$ but the settlement forms have been signed and I think my Attorney is or has withdrawn our lawsuit against them in Tax Court.

 

[Ringandpinion 1,657]

29 minutes ago, vinky5 said:

Thanks for the words of wisdom!!  Do you have any recommendations of good Tax Attorneys that help with Tax Planning and Preparation?

Sadly, I will have to hunt for a new one.  I used a guy for years here in Houston but he retired about the same time I did and is raising cattle up in the panhandle, hoping the climate change crowd doesn't come after his cow farts.  As of now, I haven't found anyone.

 

32 minutes ago, vinky5 said:

I officially hate the IRS now - during this Audit the IRS and the Taxpayer Advocate Office were incompetent and unprofessional.

Unfortunately, the structure of the IRS leaves them pretty free to do whatever they want and at worst some bureaucrat will get promoted to a GS10,000 and moved to the Topeka Kansas office for a year as punishment for being stupid enough to do something you can prove.  I have also been told that once you've been audited they keep a closer eye on you, don't know if that is true but it fits with the bureaucrat mentality.  I have your same opinion about most of the government alphabet soup agencies, I think the last decade has made me go from distaste to outright fear of how our government is handling things, I have already apologized to my grandchildren for leaving them this big old $#!t sandwich.  Hopefully I'll be dead and buried before the wheels come off.

[vinky5 1]

hahaha.  You think once someone is audited even if they won the audit that that increases their chances of a future audit?

Obviously no one likes to be audited but my beef is if you audit me and I send you the answers to your questions, you need to read those answers or speak to me/my CPA on the phone as we requested multiple time so we could explain and teach you.  They violated several items on that "Tax Payers Rights" document they send with the Audit.  I wanted to sue them for damages it caused me but I don't know how that is done given it is related to Taxes and the IRS.  I consulted several Attorneys and they all said to just sue in Tax Court and get the Tax matter resolved and then move on with my life.

It's funny, during the Appeal Process, my Attorney arranged a conference call with some people high up in the IRS and Tax Payer Advocate Office and they basically acknowledged that "your experience is not uncommon from others."

[Ringandpinion 1,657]

13 minutes ago, vinky5 said:

It's funny, during the Appeal Process, my Attorney arranged a conference call with some people high up in the IRS and Tax Payer Advocate Office and they basically acknowledged that "your experience is not uncommon from others."

When I sold my house in Alaska and moved back to Texas, the buyer was an attorney retiring from the DOJ and his wife was an attorney retiring from the IRS.  We became friends and talked a lot, they both said, numerous times that the people they worked with and for were bad people and they had to get out of there or become like them.  These were good people and I never heard them bad mouth anybody except those.  The conversations, over a little whiskey sometimes, went further but the ultimate viewpoint conveyed was that the people in these government agencies were not just bad but bordered on almost evil the way they attacked the general public.  Nothing mattered except job advancement and crushing anybody that got on the sharp end of their agencies.  The vehemence expressed was sometimes surprising, this couple hated what was going on there and knew there was nothing they could do about it and took early retirement when it was offered.  Kind of changed my viewpoint as well.

[vinky5 1]

dang that is so sad.  When I first began to read your message I was thinking every industry has unspeakable things going on but this seems worse than that.