Taxing Times – Top Tax Questions for Newly Independent FAs

Asked and Answered – Questions from Newly Independent Financial Advisors on Deducting Home Office Space, Airfare for Business Trips and How to Correct Business Owner Tax Returns

When you’re an independent wealth management business owner, expectations are higher than would be the case with other entrepreneurs among clients, business partners and regulatory authorities when it comes to dotting the I’s and crossing the T’s on your taxes.

I leverage my 20 years of experience as a CPA that works with many entrepreneurial financial professionals to answer thorny tax-related questions from Wealth Solutions Report’s readers among the independent advisor community.

The #1 topic financial advisors want to discuss lately? Tax deductions!

For this month, I received multiple questions from financial advisors who are relatively new to the independent channel, having been W2 employee advisors until recently.

The top three questions for this issue include:

  • Whether garage space can be included in calculations for home office deductions
  • How to approach tax deductibility of airfare for trips that are both personal and business-related
  • What financial advisors who are new to running their own independent practices can do if they believe they made an error on their tax returns

Here goes!

Question 1:  Since March of last year, I’ve been working out of my garage, which I refurbished as a home office.  Can I include or exclude my garage space in calculations of business use percentage of my home?

  • Francis from Irvine, CA
Could your garage office be tax deductible?

The past year or so we have been fielding so many questions regarding the business use of home deduction. It is something that has been on everyone’s mind due to be forced or choosing to work from home due to Covid. 

If you are an employee at a firm, you are out of luck. Back in December 2017 Congress eliminated the Federal tax deduction for employee business expenses. One of those employee business expenses is the business use of home deduction. 

If you are a self-employed, independent financial advisor, you can claim a deduction for using your home if the location is your principal place of business. 

But it gets a little tricky on how to calculate the business percentage. The rules are a little unclear if you can claim your garage, but there are Tax Court cases that allow the garage to be included in the calculation. The space used for business is determined by one of two methods:

  • Area Method: Divide the area used for your business by the total area of your home. For example, if you home is 1500 square feet and your home office is 300 square feet, your office space is 20% of the total area of your home. 
  • Number of Rooms Method: Divide the number of rooms used for business by the total number of rooms in the home (including your garage). If the house has 6 rooms including the garage. You use only the garage for business then you get a (1 divided by 6) 16% deduction of related home office business expenses. 

In most cases, the area method is best, since most homes have different sized rooms. The number of rooms method seems to work better if you are renting an apartment. 

Question 2:  This week, I’m traveling to Orlando, Florida this week for an industry conference that will last four days.  Since I have family in the area, I plan to add three days onto my trip to spend some time with them.  How much of my airfare is tax deductible?

  • Nina from Charlotte, NC
Don’t forget about tax-deductible airfare!

All of the airfare is tax deductible. 

Business days are important in determining how much of your travel cost you may deduct. For example, on a seven-day trip to Orlando, four business day makes the airfare deductible.

Yes, you heard that right:  With three personal days and four business days in Orlando, you deduct 100 percent of the airfare.

The cost of transportation on the 50 states and Washington, D.C., is an all or nothing expense. If you spend the majority of your trip days on business, you deduct 100 percent of the direct route transportation expense. If the majority of your days are personal days, you get zero deductions. 

What can sink this deduction? Poor record keeping. Keep records of your plan ticket, date arriving, departing and the records and receipts of the conference. 

Question 3:  I just set up my own independent financial advisory business in the first quarter of last year, and I believe I made an error on my tax return.  What are the best ways to proactively address this?  And what’s the best timeframe for doing so?

  • Jorge from Tulsa, Oklahoma

If you made an error on your tax return, don’t worry, as there are two easy ways to fix it:  Filing a superseding return, or filing a qualified amended return

A superseding return is an amended or corrected return filed on or before the original or extended due date. The IRS considers the changes on a superseding return to be part of your original return.

A qualified amended return is an amended return that you file after the due date of the return (including extensions) and before the earliest of several events, but most likely when the IRS contacts you with respect to an examination of the return. 

If you file a qualified amended return, you avoid the 20 percent accuracy-related penalty on that mistake.

When it comes to the IRS, an ounce of prevention is worth a pound of cure. If you made a mistake, fix it as soon as you know about it, which will save you penalties, increased interest accruals, and the headache of an IRS review of your return.

Michael Cody
Managing Partner
Lieb Cody and Co.

Michael Cody, CPA, is Managing Partner of Lieb, Cody and Co., a tax advisory firm that serves clients across the country, including independent financial advisor business owners.

Founded 40 years ago and headquartered in Torrance, CA, the firm encompasses seven accounting professionals (both CPAs and Enrolled Agents).

Lieb, Cody and Co are a member of the American Institute of Certified Public Accountants (AICPA) and CALCPA Society. 

If you have tax questions related to your independent financial practice – or tax questions that your clients have raised with you – send them to Michael Cody via

All queries will be addressed as anonymous submissions.

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