Do I pay someone now and deduct later?

Question

I need to lay a tile floor in a house I'm fixing up for sale. Materials run about $500. Installation will be maybe $1500. I believe I can deduct labor and materials when the man comes in April. If I do it myself, I save the 1500, but I'm out the hours. Can I pay myself to maintain the deduction? I'm not a contractor and don't have a company from which to draw a check. Which would be most cost effective?

Answer 1

If you paid yourself you'd have to consider that income from a business, and pay self-employment taxes on it. Personal labor can't be deducted unless you also declare the income that you would have paid yourself. And as far as deducting the labor and materials for paying someone, you wouldn't deduct it, but would add it to the costs of the house. That will minimize your capital gains on selling the house. If you feel you are qualified to do the tile floor and have the time, it would be most cost effective for you to do it. Doing it yourself would cost $500, paying someone to do it would cost $2000. But only if you know what you're doing, and have the time. If you don't know what you're doing you might be spending $2500 or more ($500 for the materials for you to do it, and $2000 or more for someone else to correct what you did, and do it correctly).

Answer 2

If you do the work yourself you will effectively be paid by not having to pay someone else to do the work. That's more money in your pocket than what you would save with a tax deduction. If you wanted to pay yourself instead you would have to be paid by a separate business entity, such as LLC or a corporation in which you are a shareholder/employee. This would generate not only taxable wages for you but payroll taxes and unemployment taxes for your business. I would say you're much better off just doing the work yourself and taking a deduction for your cost of materials when you sell the house.

Answer 3

Your belief is not quite right - you can only add the cost of improvements when you actually sell the house, so unless you sell it in 2007, hang onto the receipts for the tile until you do sell it.

The value of your own labor is never deductible. You can only deduct money actually paid out. If you found a way to pay yourself then deduct what you paid, you'd have to pay income tax on what you paid yourself, plus self-employment tax, so you'd be out even more tax even after the deduction.

Answer 4

No. Not only because you can't pay yourself but also, you can't deduct home repairs on your income tax anyhow.

What you are doing is raising the value of your home, so you'll reap greater profits when you sell the house rather than getting deductions on your taxes.

Answer 5

You can't pay yourself, you just have a lower cost. Just think about it, if you paid yourself $1,500 you could deduct $1,500 and report $1,500 in income and still be back at zero.

Answer 6

you cant pay yourself and why would you want to have to pay income tax on something you did for yourself so just buy the materials and do the work on your freetime