# Supervising Subs?



## Melissa (Feb 23, 2006)

Do you supervise your subs? Even when you don't need to be there? We do with some but not all and some to different degrees then others. Like for demo, we have one of our guys go and supervise the entire time. He'll help a little or try to find something else to do, but is this a waste of money? What do you guys do?


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## R&S Exteriors (Aug 4, 2006)

Melissa said:


> Do you supervise your subs? Even when you don't need to be there? We do with some but not all and some to different degrees then others. Like for demo, we have one of our guys go and supervise the entire time. He'll help a little or try to find something else to do, but is this a waste of money? What do you guys do?


 
Technically you can't supervise a sub-contractor. Only his/ her final work.

*



Who is an Independent Contractor?
A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Click to expand...

The IRS could declare that they are actually your "employee's" and not sub-contractors and then you would be responsible for all insurance's, workers comp, taxes, etc

You need to get good Subs, sign an agreement and let them do their work. I personally would not work for a GC who had someone watching me all day long. IMO*


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## Grumpy (Oct 8, 2003)

Constant supervision? No. We call them first off each morning to make sure everything is on schedule. If there is some change for what ever reason, we adjust. While the work is being done I like for the estimator to show up, and/or the production manager only for a few minutes. When the job is done there is a final inspection to make sure everything is clean and accurate.

R&S is correct according to the IRS you aren't supposed to train or work with a subcontractor. I know it's bullcrap but it's the rules. We give a pretty detailed scope of work explaining WHAT we want done, just like an architect gives a scope of work. This is how we get around that rule. The work has to be done according to our scope.


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## Mike Finley (Apr 28, 2004)

No way. Maximizing R.O.I in your business means to take it where you can get it. In being able to pay someone else to do something why not try to take advantage of what you are actually paying for? R&S makes a good technical point too, and we all know it is a technical point but it does make a good point of the way it should be working anyways.

I can see how you would want somebody on site during demo, it makes perfect sense since unlike almost everybody else I don't think demo is for morons with muscles. Give me a nimble guy or two who understand how a wall was built, how electrical and plumbing was most likely run over the moron with 21 inch biceps any day.


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## mdshunk (Mar 13, 2005)

I appreciate it if the person that hired me breezed in for a minute each day to answer a question or two, but that's about all I need. Sometimes, I don't even need that if it's a straightforward job such as new work normally is. Most of the time a cell phone number for a person to call when a question crops up is sufficient.


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## Double-A (Jul 3, 2006)

Melissa said:


> Do you supervise your subs? Even when you don't need to be there? We do with some but not all and some to different degrees then others. Like for demo, we have one of our guys go and supervise the entire time. He'll help a little or try to find something else to do, but is this a waste of money? What do you guys do?


Scope of work or not, we have someone there when they show up to go over the work, answer questions, point out pitfalls, etc.

We don't babysit. Point, talk, run. We're always close by if questions should arise. For demo, we have one of our folks on the job at all times just for CYA. 

We had someone take down a wall unnecessarily once.


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## IHI (Dec 25, 2004)

If I wanted to be there i would'nt hire subs...kind of defeats the purpose IMO. There's nothing wrong with shooting the breeze for a couple but the folks you hire should have a clue about wtf is going on, otherwise your taking a huge risk even hiring them to work for you if they're 1 minute away from wiping the drool from their mouth and strapping on a helmet:w00t: 

A brief stop either prior work beginning when subs are scheduled or an hour after subs show up is all that's needed unless something off the wall and unable to solve over a phone pops up.


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## Melissa (Feb 23, 2006)

R&S Exteriors said:


> Technically you can't supervise a sub-contractor. Only his/ her final work.
> 
> *
> 
> ...


I understand your point, but it would be absolutely ridiculous if the IRS tried to say these guys are our employees just because they are supervised. 



IHI said:


> if they're 1 minute away from wiping the drool from their mouth and strapping on a helmet


HA! You're a crack up! 

Thanks for the tips guys! I agree we need to either find better subs or have more trust in the one's we have. They do great work, they're lic'd, ins, bonded, etc, etc, but some of the guys they send out look pretty shady, and the houses we work on are in expensive neighborhoods. I visited the jobsite last Friday afternoon, and one of the tile guys had all gold front teeth. :blink: and barely spoke English. Sweet as can be (well I brought ice cream so that was probably why :laughing: ) but still ya know? I don't know. All I know is we need to make some money :thumbsup:


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## Melissa (Feb 23, 2006)

Grumpy said:


> R&S is correct according to the IRS you aren't supposed to train or work with a subcontractor. I know it's bullcrap but it's the rules. We give a pretty detailed scope of work explaining WHAT we want done, just like an architect gives a scope of work. This is how we get around that rule. The work has to be done according to our scope.


I should probably clarify what I meant by 'supervising'- we're not actually standing over and telling them what to do and we're not in there business at all (unless we're helping them carry demo stuff out or something like that). We're just there in case something goes wrong, or something gets uh... er... stolen But good point about the IRS. Thank you. Because I really never thought about that.


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## Grumpy (Oct 8, 2003)

Ya know large commercial buildings usually have a full time on site superintendant who's sole job is to be there to answer questions and periodically check up on the subs and make sure things are going according to plan. It's been my experience that on jobs so large that move so quick, this person is really needed.

However that person isn't there to tell me what to do and how to do it. Infact it's been my experience that they really have no clue. I mean after all how can one person know all details of all trades. But if I am looking at a print and need clarification on something, he is my go to guy. Or if I need to know when another trade is doing something so I can coordinate, he's the guy to ask.


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## ch0mpie (Nov 30, 2005)

I realize this may not apply as readily for the home improvement business, but here I go anyway. As I've told you guys before, on top of my handyman business, I work as an inspector for a geotech engineering company. The company often subcontracts drilling and excavation work and sends me out for "full-time, controlled inspection". Sometimes the company is hired by gc's for the sole purpose of providing "full-time, controlled inspection" for there subcontractors. This is not a regular come to the site for 15min and look around inspection; basically I supervise, I'm not supposed to help (but I often do), I can't tell them what to do (but I can call my boss who will call there boss, who will call them, and tell them what I said, so ussually they just ask me what to do), and on rare occasions I perform quality control tests or collect samples for lab testing. The thought is that any mistakes in a borehole or excavation can be covered up by workers, and no one will know about it until it is way too late.


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## R&S Exteriors (Aug 4, 2006)

*This is long But Very Important*



Melissa said:


> I should probably clarify what I meant by 'supervising'- we're not actually standing over and telling them what to do and we're not in there business at all (unless we're helping them carry demo stuff out or something like that). We're just there in case something goes wrong, or something gets uh... er... stolen But good point about the IRS. Thank you. Because I really never thought about that.





> I understand your point, but it would be absolutely ridiculous if the IRS tried to say these guys are our employees just because they are supervised.


Melissa I was not trying to be technical or snide. The IRS is very ridiculous and this is a "hot" item with them right now. They are auditing alot of contractors and assessing huge fines. Here is a case from just a month ago




> *IRS independent contractor reversal and fines could topple Southwestern erector's business
> 
> July 12, 2006 - A small and relatively successful Southwestern tower erection and maintenance company is staving off bankruptcy after the Internal Revenue Service disallowed the independent contractor status of some of its subcontracted labor and assessed the company $36,700 in back taxes and penalties last May after investigating a nine month period during 2005.
> 
> ...


Behavioral control is one of the main factors the IRS uses to determine if you have subcontractors or employees



> *BEHAVIORAL CONTROL
> 
> 
> These facts show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
> ...


And it's not just Audits that can get you into trouble. If a Sub you use gets mad at you they could report you to the IRS and allege that they are actually employee's but your treating them like subs and the IRS would investigate.

Also if a Sub gets hurt and does not carry workers comp on himself or let it lapse on his workers he could allege, that since you have been supervising his work, that he is actually your employee and would probably win. Then you would not only owe the back taxes to the IRS they would get you for not having workers comp. And Sue

Another factor is benefits. I read in another thread, forget who, likes to carry the insurance for his subs. That is a big no-no. The IRS looks at that as a factor and leans toward the "sub" being an employee




> ​*Employee Benefits *
> 
> *if you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee.
> *




*Your best defense is to have Written Contracts with all your subs and then let them do the work*




> *Written Contracts *
> 
> *a written contract may show what both you and the business
> intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts.*




*Sorry about the long Post just want everyone to stear clear of the IRS. They are not our friend.  *


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## Teetorbilt (Feb 12, 2004)

All big co's have supers for inspection purposes and as a liason to the subs. I perform the same function, I can see where there could be a fine line here although it's never been a problem.


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## R&S Exteriors (Aug 4, 2006)

Teetorbilt said:


> All big co's have supers for inspection purposes and as a liason to the subs. I perform the same function, I can see where there could be a fine line here although it's never been a problem.


True. It usually is not a problem until it is a problem and then it is a BIG problem. The IRS is not ethical and they are not rational they just want to screw as many people as they can to get unjustified "back taxes". They don't care if it is going to bankrupt someone or not.

Home office deductions is another area where the IRS is really going after people. As a matter of fact my tax software comes up with a "flag" if you take a home office deduction letting you know that the is one of the biggest reasons IRS will pick to audit a return. I do all my paperwork at home, but I do not even take the deduction because of this.


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## Joasis (Mar 28, 2006)

My accountant keeps me on the straight and narrow, and his opinion is when the sub has an EMPLOYER ID NUMBER, Withholds taxes, pays the government, maintains workman's compensation insurance, has their own invoices, business cards, and other indications of being self employed, the IRS has trouble trying to say they are anything but sub contractors. God forbid if the IRS says they are your employees at a $55 an hour rate and make you pay the withholdings based on that amount...geez....it would wreck any small business.

As to the home office, we do not claim one for the reasons stated above. Why look for a small deduction and risk the audit?


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## Mike Finley (Apr 28, 2004)

R&S Exteriors said:


> Home office deductions is another area where the IRS is really going after people. As a matter of fact my tax software comes up with a "flag" if you take a home office deduction letting you know that the is one of the biggest reasons IRS will pick to audit a return. I do all my paperwork at home, but I do not even take the deduction because of this.



Big wives tale.

Do a recent search about the billions of lost revenue the IRS can't collect because it is understaffed for audits. Historically and statistically in the last 10 years tax audits have been the lowest ever. The home office deduction is a wives tale from the 80s.


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## R&S Exteriors (Aug 4, 2006)

Mike Finley said:


> Big wives tale.
> 
> Do a recent search about the billions of lost revenue the IRS can't collect because it is understaffed for audits. Historically and statistically in the last 10 years tax audits have been the lowest ever. The home office deduction is a wives tale from the 80s.


 
I never said the IRS audits a high percentage of people.The IRS audits about (2% or 1.5 million returns). That is low. So they use certain "Red Flags" to decide who they are going to Audit. We are already highlighted because we are self employed and they audit a much higher rate of self employed then salaried employees.




> *High-Risk Tax Audit Areas - Self Employment
> 
> Because the IRS believes most under-reporting of taxable income and abuse of tax deductions occurs among those who are self employed, these individuals are audited by the IRS far more frequently than employees collecting a salary.
> *


*Do some searches on IRS audits and you will find it is NOT an old wives tale that a home office deduction could cause you to have a greater chance of being audited. The IRS website even had it listed in 2004 when I did allot of research on business taxes.*


*



http://money.cnn.com/2005/01/31/pf/taxes/avoid_audit/index.htm

Click to expand...

*


> *5 audit red flags
> 
> NEW YORK (CNN/Money) - The overall number of individual audits is still relatively small, but membership in this club is open to all
> 
> ...


*

Just trying to give out some tax advice not passing on Old Wives Tales


Also here is the guide that IRS auditers use when they audit us. Might be useful to read





http://www.irs.gov/pub/irs-mssp/build.pdf

Internal Revenue Service 
Construction Industry 
Audit Technique Guide (ATG) 

Click to expand...

*


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## R&S Exteriors (Aug 4, 2006)

You also have a MUCH GREATER chance of an audit if the IRS a "TIP" from an informant

Which is what I said about an unhappy subcontractor. They report you for treating them like an employee and your chances of an AUDIT go way up.


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## Jon F (Jul 15, 2006)

Dang. This all makes me want to start a career flipping hamburgers. I hope I never get audited.


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## Mike Finley (Apr 28, 2004)

R&S I think you suffer from a typical syndrome which is overly fearing the power of the IRS. It's similar to the cold war syndrome, that great myth that Americans were lead to believe that the Soviet Union was in much more of a position of power than the sad truth which was it was on the verge of collapse. I think much of the strangle hold the IRS has is self-granted by tax payers, thinking they are much more then they are.

My wife is a CPA, I have a CPA for an accountant, I rub elbows with dozens of CPA, the wife is on the board of directors of the Colorado Society of Accounting so I get past a lot of the "what you hear" type of stories and get exposed to more of the reality or what you don't hear stories. I put a lot more credibility on insiders and tax professionals than editors of magazines like Money who have an interest in creating interesting stories to sell magazines. Have you ever read the stories they run about how to hire a contractor? I'm betting you are able to shoot holes through those stories pretty easily since you are in the trades yourself.

Jon - Don't lose any sleep over it, I've been self-employed for 17 years and never faced an audit, if I do I could *careless*. That's why I have an accountant, *that's why her signature is on the tax returns also*, and that's why I have boxes of records in the basement. By the time it's over they would probably be offering me a refund for deductions I didn't take and could have. I'll stick by the advice I'm given by tax professionals which is if you have a legitimate deduction to take it. If you have nothing to hide you have nothing to worry about.


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## Jon F (Jul 15, 2006)

Mike Finley,

(Great site/Co. image BTW.) My concern has always been those first few years when just starting out, when things weren't running totally "legit". I'm sure many that are in trades start out that way, and I am not justifying it, but it is a fact, at least in my case. I was concerned about making money first, governmental obligations second. Paying part-time guys and not taking out taxes, that sort of thing.


Regarding the "home office": A good friend is a regional tax manager for Ernst&Young, and he told me not to do it, major red flag. I argued and said, "well, if it is a deduction then I should take it." And he responded, "there is nothing wrong with having a redflag go up, so long as you are comfortable with what they are going to find." He then smiled at me as I hung my head in shame.j/k But that's the truth: if you don't mind an audit, take the deduction. If you are trying to fly under the radar, steer-clear of the redflags.


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## Mike Finley (Apr 28, 2004)

Your friend at E&Y needs to get better acquainted with reality. It's amazing and I'm sure people in the IRS just laugh their asses off at the urban legend proportions of the dreaded "Home Office Deduction" has somehow grown to. I must be dodging a bullet that is still trying to find me for the 10 some years I have taken it off and on.

Jon, get yourself on the straight and narrow as soon as possible. Anybody who can't run their business above board isn't really running a business. When that's the case you need to take a serious look at why you can't do things legitimately and correct them. You know what they say about ignorance of the law and all, there is no freebie given for people just starting out and what is it, 7 years or so that you are liable for your sins right? If you can't afford to do business the right way you've got some serious flaws in your business, best to get things on track sooner then later. I've ran a lot of businesses and have never felt the need to cheat, steal or lie in doing them, it takes a little bit of hardship but it's like a nice solid base to work from once you establish the foundations of your business properly, the only place you have to go is up after that, plus it sure make sleeping at night a bit better and you won't have to worry about taking your home office deduction or not.:clap:


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## Jon F (Jul 15, 2006)

Well said and thanks for the advice Mike. You got it....the seven yr. thing is a nightmare, and you are right, ignorance is no excuse.


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## R&S Exteriors (Aug 4, 2006)

Jon Fife said:


> Mike Finley,
> 
> Regarding the "home office": A good friend is a regional tax manager for Ernst&Young, and he told me not to do it, major red flag. I argued and said, "well, if it is a deduction then I should take it." And he responded, "there is nothing wrong with having a redflag go up, so long as you are comfortable with what they are going to find." He then smiled at me as I hung my head in shame.j/k But that's the truth: if you don't mind an audit, take the deduction. If you are trying to fly under the radar, steer-clear of the redflags.


This is exactly right. And even if you "feel" you have done everything right the IRS will *Interpret* your return and deductions the way they want to. Then your screwed either way. If they say you owe them $15,000 in back taxes, penalties and interest you either pay it or you pay more than that to a Lawer to try and fight it. 



> Mike Finley
> 
> R&S I think you suffer from a typical syndrome which is overly fearing the power of the IRS


These Auditors get paid to bring in more tax money. PERIOD. If you think they are just nice oky doky people that are just a pleasure to chat with then you have never dealt with them. These people get their promotions and justify their position by how much more money they bring in and many do not care if they screw an honest tax payer in the process

My Aunt was audited a few years ago. The auditor was a total A*shole. When asked he admitted that her return was picked because of the large amount of deductions, especially the home office deduction. She was following what her CPA told her she could deduct. Long story short the "nice" auditor told her she owed over $17,000 in back taxes, penalties and interest.



> Mike Finley
> That's why I have an accountant, *that's why her signature is on the tax returns also*


Mike I really hope your not counting on your Accounant being held liable if an Auditor disagree's with your return. You as the taxpayer are liable for all the information on that return. That is why many CPA's will promise the world to get your business. They won't be held liable.

My Aunt was totally relying on her Accountant as to what to claim. Of course after the IRS decides you owe them big money the accountant will say *"I just do the return. I rely on my client to give me reliable information*". My Aunt's accountant had zero liablity.

*



http://www.irs.gov/instructions/i1040gi/ar02.html#d0e13576<H3 class=title>Sign Your Return

Click to expand...

*


> Form 1040 is not considered a valid return unless you sign it. If you are filing a joint return, your spouse must also sign. If your spouse cannot sign the return, see Pub. 501. Be sure to date your return and enter your occupation(s). *If you have someone prepare your return, you are still responsible for the correctness of the return*. If your return is signed by a representative for you, you must have a power of attorney attached that specifically authorizes the representative to sign your return. To do this, you can use Form 2848.


Once again I was only trying to give out some information. It is only my opinion and opinions are like A**holes, Everybody has one. 

I'm sure Mike is much more _qualified _on this issue, But I do not take the home office deduction because it is a red flag and the home office has to be Exclusively for the business and almost all do not.



> _*Exclusive Use*
> 
> *To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition. *
> 
> ...



_*They can always find something to disquaify you. Do you ever use your computer for non-business stuff, your phone for personal calls. Let your kids plan in your office.*_


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## Tscarborough (Feb 25, 2006)

I claim not one but 2 distinct homes offices, mine and my wife's. (Well currently I don't, but I did for the years when we were actually using them). I always hoped they would audit me, but they never did.


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## Mike Finley (Apr 28, 2004)

R&S you have some good points, but they will never sway me on the home office deduction, it's a wives tale, you believe what you want and I will believe what I want. But like I said you make some good points, too many to address, but I will address the accountant issue and returns. She's a CPA not just an accountant, if she wants to remain a CPA she has to abide by a different set of rules than just another plain jane tax accountant. I do count on her being there if there was an audit, in fact as she and I have discussed she better count on being there and not me.


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## R&S Exteriors (Aug 4, 2006)

Mike Finley said:


> R&S you have some good points, but they will never sway me on the home office deduction, it's a wives tale, you believe what you want and I will believe what I want. But like I said you make some good points, too many to address, but I will address the accountant issue and returns. She's a CPA not just an accountant, if she wants to remain a CPA she has to abide by a different set of rules than just another plain jane tax accountant. I do count on her being there if there was an audit, in fact as she and I have discussed she better count on being there and not me.


Mike you sound like you got yourself covered. I'm sure your CPA is great and has you covered. And CPA's are definately better than regular accountants or tax preparer businesses. As a matter of fact the GAO did a study and found that:


> Commercial preparers, paid preparers often prepared returns that were incorrect, with tax consequences that were sometimes significant.
> 
> In most states, anyone can be a paid preparer regardless of education or training.
> 
> No matter who prepares a tax return, the taxpayer is legally responsible for all of the information on that tax return.


I guess this thread has gone off topicfftopic: MY FAULT
It started off with a question about supervising subs and I just wanted to give a heads up that the IRS could declare them your employee if you are supervising them and put a screwing to you.


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## maj (Mar 13, 2006)

Since we're so far off topic anyway, you guys have gotten me to thinkin'. About the home office thing..... Mine is 95% exclusive to my business, so I know that disqualifies it as an exclusive business office. I have all my guns in a cabinet and personal records and private "stuff" in one desk in my office. My question is, how much notification is one given if he were to be audited. They don't just bust in like the guys on cops do they? :laughing: I would think you are given time to get all your records in order, correct? So during this time, wouldn't one be able to clear his office of all personal things and make sure it "looks" like an exclusive office when Mr. auditor gets there?


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## Joasis (Mar 28, 2006)

I will go with what my accountant advises, and he is a CPA, and he said don't do it. He is good, it is what I pay him for, and thus I will follow his advice. The deduction is not worth the headache. Besides...my real office is my truck...no joke...how much work do you do in your work truck?


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## Tscarborough (Feb 25, 2006)

You can have personal stuff in your office-hell I have more personal stuff in my office at work than I do in my home office. The determining factor is what it is used for. If you build model airplanes in there, there is an issue, but if you hang model airplanes from the ceiling there is no issue.


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## maj (Mar 13, 2006)

Tscarborough said:


> You can have personal stuff in your office-hell I have more personal stuff in my office at work than I do in my home office. The determining factor is what it is used for. If you build model airplanes in there, there is an issue, but if you hang model airplanes from the ceiling there is no issue.


What about a gun cabinet and the closet full of camo & hunting gear?


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## scottstef (Dec 15, 2005)

maj said:


> What about a gun cabinet and the closet full of camo & hunting gear?


couldn't that be written off as a business expense? Honest, sometimes i need to do collections and need the guns and camo to "convince" people to pay.

:whistling


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## R&S Exteriors (Aug 4, 2006)

joasis said:


> I will go with what my accountant advises, and he is a CPA, and he said don't do it. He is good, it is what I pay him for, and thus I will follow his advice. The deduction is not worth the headache. Besides...my real office is my truck...no joke...how much work do you do in your work truck?


Exactly. 

Some say "I'm not worried about an audit". Everyone should be somewhat worried. If nothing else just because of the time and trouble involved with it.

Also because it is a proven fact that the tax laws are so numerous and confusing that if you have (5) different accountants do your taxes they will come up with (5) different amounts you owe and then the Auditor comes up with his/her own interpretation. Usually allot more than the other (5). Then you get to try and "prove" and justify everything. Not worth the headaches. And you will spend more on CPA's and Lawyers trying to fight it so the IRS knows they can squeeze some more money out of you without much of a fight.


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## Mike Finley (Apr 28, 2004)

scottstef said:


> couldn't that be written off as a business expense? Honest, sometimes i need to do collections and need the guns and camo to "convince" people to pay.
> 
> :whistling


:laughing: Don't know if that would work, but I like the sound of it!


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## Melissa (Feb 23, 2006)

R&S, I appreciate the advice, articles and links. At first I was defensive, but really it's very good information to have.


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## R&S Exteriors (Aug 4, 2006)

Melissa said:


> R&S, I appreciate the advice, articles and links. At first I was defensive, but really it's very good information to have.


Your welcome. 

I was defensive at first too because I would hate to have someone looking over my shoulder on the few jobs I sub on and probably would never work for them again. Although I can see your point with some subs you almost have to. Just don't hire that type of sub I guess.


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## Double-A (Jul 3, 2006)

maj said:


> What about a gun cabinet and the closet full of camo & hunting gear?


<in the voice of Elmer Fudd> Be vewy vewy quite! I'm hunting deductions! heheheh!:w00t:


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## R&S Exteriors (Aug 4, 2006)

maj said:


> *I would think you are given time to get all your records in order, correct? *
> 
> *So during this time, wouldn't one be able to clear his office of all personal things and make sure it "looks" like an exclusive office when Mr. auditor gets there?[/*quote]
> 
> ...


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## Tscarborough (Feb 25, 2006)

Yeah, it needs to be a seperate room for sure.


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## Double-A (Jul 3, 2006)

If you use/want to use a home office and take a tax deduction, here is the IRS publication that explains the rules.


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