Consumption Tax On The Horizon?

Who’s to say?  It could happen.

So saith The Wall Street Journal, last week, quoting Senator Ben Cardin (D, MD), co-chairman of a Senate Finance Committee working group looking into this plan in the context of the often-mentioned overhaul of the tax system, which should come sooner rather than later.

Cardin actually introduced legislation, last year, to enact a form of consumption tax known as a “value added” tax (essentially, a national sales tax on goods and services purchased by we and thee) while lowering business taxes and shelving income taxes altogether for lower income folks.

The rap on a consumption tax approach has always been, of course, that it hammers poor people, while favoring, in comparison, the rich among us.

We shall see.

And a recent decision of the Tax Court reminds us of the rules which allow taxpayers to deduct expenses of maintaining an office in their home.

In its decision to the detriment of taxpayers Mr. and Mrs. Arunas Savulionis, the Court zeroed in on the rule which permits the deduction of home office expenses only if the portion of the home in question is used exclusively and on a regular basis as the principal place of one’s trade or business.  The taxpayers claimed that their house was, indeed, the principal place of business and, more specifically, that the home’s entire living room was used exclusively for business purposes.

Choking back laughter, however, the Court makes mention of the fact that entry to and exit from the house was through a door in the living room.  Access to all other rooms in the house was through the living room.  Three individuals lived in the house (the taxpayers and their daughter) and likely congregated in the living room and “no doubt” otherwise engaged in other family activities in that room.

The taxpayers claimed, on the other hand, in justification for their deductions, that the entire living room was used exclusively for business purposes, which the Court found “wholly inconsistent with a commonsense notion of the everyday realities of family life of a three-person family residing in a dwelling unit.”

Nice try – no cigar.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder of Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He may be reached at 831-7288, and welcomes comments at jquinn@ashleyquinncpas.com.

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