If you operate your business from your home, you may be entitled to claim the "Home-Office Deduction".
To qualify for the home-office deduction, the portion of your home that is used for business purposes must be:
used "regularly and exclusively"
your "principal place of business"
used for the employer's convenience (in the case of an employee)
You can also claim the deduction for any space you use "regularly and exclusively" to conduct administrative and managerial activities when you have no other fixed location to do so.
The deductions are limited. The office-in-home deduction can never create or increase a loss. Any disallowed expenses can be carried forward to future years.
We can help you determine whether you qualify for this deduction and the tax consequences if you eventually sell your home.
Sunday, December 26, 2004
Friday, December 17, 2004
Do You Know How Much Sales Tax You Pay?
Sales Tax deduction tables issued
As promised, the IRS has finally given us the tables we can use to calculate the sales tax deduction. (See our previous post on this deduction).
I'm a little underwhelmed at the tax from the table; for instance, a family of four that makes $70,000 is only given a $1,001 sales tax deduction. At 7.6% tax, that means the IRS assumes you only spend $13,100 each year on sales-taxable items. I guess if you back out all of the non-sales-taxable expenditures you make (rent/mortgage payments, groceries, utilities, etc.) it might approach reality.
Of course, you also get to add the tax paid on certain major purchases. These are now spelled out by the IRS as the following:
As promised, the IRS has finally given us the tables we can use to calculate the sales tax deduction. (See our previous post on this deduction).
I'm a little underwhelmed at the tax from the table; for instance, a family of four that makes $70,000 is only given a $1,001 sales tax deduction. At 7.6% tax, that means the IRS assumes you only spend $13,100 each year on sales-taxable items. I guess if you back out all of the non-sales-taxable expenditures you make (rent/mortgage payments, groceries, utilities, etc.) it might approach reality.
Of course, you also get to add the tax paid on certain major purchases. These are now spelled out by the IRS as the following:
- Motor vehicles - (including car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle)
- Aircraft
- Boats
- Homes or home building materials
Sunday, December 12, 2004
Last-Minute Tax Tips for 2004
Gail Buckner from Fox News provides some good Last-Minute Tax Tips for 2004
Wednesday, December 08, 2004
Keeping Track of Your Employees
A recent workshop that some of our team attended reminded us of the importance of maintaining the appropriate information in your employee files. Did you know that you could be assessed a $250 penalty for each employee file that does not contain the correct information?
The employee files should contain, at a minimum, federal forms W-4 (wage withholding information) and I-9 (proof of employment eligibility). Also, form I-9 requires you to review copies of the employee's documents verifying eligibility. Most businesses should protect themselves by keeping copies of the documents reviewed. (You can find copies of forms W-4 and I-9 in our forms section.)
If you use a payroll service (even from our office), keep in mind that the responsibility for maintaining these files still rests with the employer. Payroll services are not required to keep this type of information on file.
The employee files should contain, at a minimum, federal forms W-4 (wage withholding information) and I-9 (proof of employment eligibility). Also, form I-9 requires you to review copies of the employee's documents verifying eligibility. Most businesses should protect themselves by keeping copies of the documents reviewed. (You can find copies of forms W-4 and I-9 in our forms section.)
If you use a payroll service (even from our office), keep in mind that the responsibility for maintaining these files still rests with the employer. Payroll services are not required to keep this type of information on file.
Year End Reporting Requirements
As we head toward the end of the calendar year, we like to remind businesses of some of the more obscure requirements they face in year-end reporting. These are things you don't want to miss, or you risk exposing yourself to potential penalties.
1. 1099's: Generally, you must issue a 1099-MISC to individuals or unincorporated businesses who you paid more than $600 in rent or services during the year. A 1099-INT should be issued for interest or dividends paid in excess of $10.
2. Employer-provided vehicles: If employees (including owners!) are allowed to use a company vehicle for any personal use, the value of that use must be included in the employee's W-2 at the end of the year. We can calculate the inclusion amount for you; just use our form to send us the information.
3. Fringe benefits to owners: If an S-corporation shareholder receives certain fringe benefits, such as health or disability insurance, the amount must be included on their W-2.
4. Group life insurance: If you provide more than $50,000 of group term life insurance to an employee (again, including owners), there's a small amount that should be added to the employee's W-2.
This is just intended to be a heads-up to help you remember these requirements. If you need help with any of these calculations, please give us a call!
1. 1099's: Generally, you must issue a 1099-MISC to individuals or unincorporated businesses who you paid more than $600 in rent or services during the year. A 1099-INT should be issued for interest or dividends paid in excess of $10.
2. Employer-provided vehicles: If employees (including owners!) are allowed to use a company vehicle for any personal use, the value of that use must be included in the employee's W-2 at the end of the year. We can calculate the inclusion amount for you; just use our form to send us the information.
3. Fringe benefits to owners: If an S-corporation shareholder receives certain fringe benefits, such as health or disability insurance, the amount must be included on their W-2.
4. Group life insurance: If you provide more than $50,000 of group term life insurance to an employee (again, including owners), there's a small amount that should be added to the employee's W-2.
This is just intended to be a heads-up to help you remember these requirements. If you need help with any of these calculations, please give us a call!
Friday, December 03, 2004
Canadian Prescriptions Now More Taxing
Living in a state that borders Canada, we've all heard about the inexpensive prescription drugs available just north of us. Did you know that there can be a hidden expense to those prescriptions?
A recently released publication from the IRS regarding Medical Expenses reaffirms their position that the cost of buying medicine from Canada is NOT deductible. That's because importing medicine from foreign countries is technically illegal. Also, since the cost of these drugs is not deductible, the prescription expenses are not eligible for reimbursement from an employer's flex plan or medical reimbursement plan.
Eventually, you may see changes in the laws governing Canadian medicine imports. For now, though, if you're buying prescriptions from Canadian medical suppliers, be sure to exclude those costs from summaries you provide us for your tax return.
A recently released publication from the IRS regarding Medical Expenses reaffirms their position that the cost of buying medicine from Canada is NOT deductible. That's because importing medicine from foreign countries is technically illegal. Also, since the cost of these drugs is not deductible, the prescription expenses are not eligible for reimbursement from an employer's flex plan or medical reimbursement plan.
Eventually, you may see changes in the laws governing Canadian medicine imports. For now, though, if you're buying prescriptions from Canadian medical suppliers, be sure to exclude those costs from summaries you provide us for your tax return.
Federal Unemployment Deposit Requirements Lowered!
According to the latest news from the IRS, life gets a little simpler for small employers as the federal unemployment tax deposit requirement is raised to $500 for 2005. This is a nice increase from the $100 deposit requirement in effect SINCE 1970!
The federal unemployment tax (FUTA) is charged on the first $7,000 of wages for each employee, each year. A business has to calculate their liability each quarter, and deposit the tax when their liability exceeds the IRS threshhold.
While this change doesn't reduce the amount of tax a business will owe, it will reduce the number of deposits required for many small businesses. Essentially, most businesses with less than 10 employees will only deposit annually...not a life-changing rule, but a definite timesaver.
Of course, the best timesaver is to hire your payroll out. Give us a call if you're interested in finding more on our payroll services.
The federal unemployment tax (FUTA) is charged on the first $7,000 of wages for each employee, each year. A business has to calculate their liability each quarter, and deposit the tax when their liability exceeds the IRS threshhold.
While this change doesn't reduce the amount of tax a business will owe, it will reduce the number of deposits required for many small businesses. Essentially, most businesses with less than 10 employees will only deposit annually...not a life-changing rule, but a definite timesaver.
Of course, the best timesaver is to hire your payroll out. Give us a call if you're interested in finding more on our payroll services.
Wednesday, December 01, 2004
Make a New Plan, Stan
The foundational step to effective, year end tax planning is the creation of an accurate tax projection. The time spent compiling information for the projection is not lost time, as the information will also be used in the preparation of your final return. Jerri & I would like to help you with your year end projection. For many taxpayers, the cost of the consultation will be more than offset by the tax saved.
If you feel comfortable doing your own year end projection, be sure you consider the potential effects of the Alternative Minimum Tax (AMT) and the effect which the amount of your Adjusted Gross Income (AGI) has on the various phase-outs of deductions and credits. The amount of your AGI and your potential liability for AMT are basic to any decisions you make to minimize taxes.
If you feel comfortable doing your own year end projection, be sure you consider the potential effects of the Alternative Minimum Tax (AMT) and the effect which the amount of your Adjusted Gross Income (AGI) has on the various phase-outs of deductions and credits. The amount of your AGI and your potential liability for AMT are basic to any decisions you make to minimize taxes.
Friday, November 26, 2004
Name That Baby, With Help From the SSA
Want the government to help you name your newborn? Probably not, but while reviewing the Social Security Administration's website for my previous post, I stumbled on an interesting page. The SSA maintains a list of the most popular baby names each year. I guess it makes sense, as they're the first to hear about most births.
I was pleased to discover find David still in the top 15 names!
http://www.socialsecurity.gov/OACT/babynames/
I was pleased to discover find David still in the top 15 names!
http://www.socialsecurity.gov/OACT/babynames/
Get Paid for Working AND for Being Retired
Working While Collecting Social Security?
You can earn as much as you want once you reach full retirement age. Full retirement age is 65 for those born in 1938 and earlier (that age gradually increases to 67 for people born after 1959). An earnings limit applies for each month prior to attaining full retirement age.
If you're reaching full retirement age in 2005, you can earn $31,800 without having to repay any Social Security benefits. Exceed this limit and you'll have to repay $1 for every $3 earned above the limit. If you'll be below retirement age all year, the most you can earn is $12,000, or else you'll repay $1 of benefits for every $2 you exceed the earnings limit.
For more details on how this works, check the SSA's website.
You can earn as much as you want once you reach full retirement age. Full retirement age is 65 for those born in 1938 and earlier (that age gradually increases to 67 for people born after 1959). An earnings limit applies for each month prior to attaining full retirement age.
If you're reaching full retirement age in 2005, you can earn $31,800 without having to repay any Social Security benefits. Exceed this limit and you'll have to repay $1 for every $3 earned above the limit. If you'll be below retirement age all year, the most you can earn is $12,000, or else you'll repay $1 of benefits for every $2 you exceed the earnings limit.
For more details on how this works, check the SSA's website.
Thursday, November 25, 2004
Stop Draggin' Your Car Around...
...and donate it to charity.
Recently, we've received many questions about contributing vehicles to charity for a tax deduction. These types of contributions became more visible when they were restricted in the recent tax bill. As a result, you've got until December 31, 2004 to contribute a vehicle under the old law.
What's the difference? Through 2004, you simply claim only the fair market value of the car. Note that according to the IRS, "the fair market value may differ substantially from the car’s “Blue Book” value."
Beginning in 2005, charities will be required to let you know how much they eventually sold your car for, and that sales price will be your deduction. (There may be different results if the car is going to be used by the charity instead of resold.) The government is trying to prevent the types of situations where taxpayers deduct $2000 while the charity only receives $200 when they sell the car subsequently.
More information on the problems that caused this change.
Recently, we've received many questions about contributing vehicles to charity for a tax deduction. These types of contributions became more visible when they were restricted in the recent tax bill. As a result, you've got until December 31, 2004 to contribute a vehicle under the old law.
What's the difference? Through 2004, you simply claim only the fair market value of the car. Note that according to the IRS, "the fair market value may differ substantially from the car’s “Blue Book” value."
Beginning in 2005, charities will be required to let you know how much they eventually sold your car for, and that sales price will be your deduction. (There may be different results if the car is going to be used by the charity instead of resold.) The government is trying to prevent the types of situations where taxpayers deduct $2000 while the charity only receives $200 when they sell the car subsequently.
More information on the problems that caused this change.
Saturday, November 20, 2004
Free & Easy W-2's for Small Businesses
If you have ever prepared W-2's for your employees, you know it can be a real hassle. You've got to get the right forms, get them printed (or typed!) correctly, and remember to mail everything off in time to the government.
Want an easier way? The easiest is to hire us to prepare your forms, but if you want to do it yourself, here's a great tool.
The Social Security Administration has a great, free online system for electronically filing up to 20 W-2's. After you sign up with them, just fill out on screen the necessary W-2's. The online system will even print for you on plain paper the right forms to distribute to the employees. When you're done, a couple more clicks will file them with SSA immediately! Also, because the system will check for mismatched names and social security numbers as you're entering information, you might save yourself some love letters from the IRS down the line.
Visit the SSA's easy-to-use site at http://www.ssa.gov/bso/bsowelcome.htm.
Want an easier way? The easiest is to hire us to prepare your forms, but if you want to do it yourself, here's a great tool.
The Social Security Administration has a great, free online system for electronically filing up to 20 W-2's. After you sign up with them, just fill out on screen the necessary W-2's. The online system will even print for you on plain paper the right forms to distribute to the employees. When you're done, a couple more clicks will file them with SSA immediately! Also, because the system will check for mismatched names and social security numbers as you're entering information, you might save yourself some love letters from the IRS down the line.
Visit the SSA's easy-to-use site at http://www.ssa.gov/bso/bsowelcome.htm.
Thursday, November 18, 2004
IRS mileage rates for 2005 released
Hot off the presses are the new 2005 mileage rates, just released by the IRS. Business miles will be deductible at 40.5 cents per mile in 2005, a nice bump up from 37.5 cents in 2004. The mileage rate for medical and moving expenses will increase $.01 to $.15/mile, but the rate for charitable use will remain at $.14.
Isn't it incredible that gas prices for charitable use didn't increase at all last year?!?
Trucks vs. SUVs
A well-publicized change in the recent tax bill was the reduction of the write-off allowed for SUVs. In an effort to raise revenue and assuage the environmental lobby, Congress reduced the Section 179 deduction to $25,000 for SUVs.
This begs the question, what's an SUV? Well, for this purpose, it's any vehicle between 6,000 and 14,000 lb. GVW, except for the following:
This begs the question, what's an SUV? Well, for this purpose, it's any vehicle between 6,000 and 14,000 lb. GVW, except for the following:
- Vehicles that seat more than 9 passengers behind the driver (think shuttle vans)
- Vehicles with a separate cargo area at least six feet long. (Most full-size pickups, but possibly not some quad-cab/extended-cab or short bed trucks.)
- Delivery vans
- Ambulances, hearses, and vehicles-for-hire used to transport people or items.
Wednesday, November 17, 2004
Paying tax...means saving tax?
The New Sales Tax Deduction
You've probably heard that residents of states with no personal income tax will now be able to deduct sales tax on their returns. It sounds like they've gotten this one right, folks. The IRS will provide a table for us to use to calculate your deduction, based on household size and income level, so you don't have to keep each receipt for the year (and you definitely don't need to bring them all to your tax appointment!)
In addition to the table amounts, you'll be able to deduct sales tax on any big ticket items like cars, boats, etc. We have to leave it at "etc." for now, because the IRS hasn't yet issued their final rules detailing this deduction. Be sure to check back later for more on this new savings opportunity.
You've probably heard that residents of states with no personal income tax will now be able to deduct sales tax on their returns. It sounds like they've gotten this one right, folks. The IRS will provide a table for us to use to calculate your deduction, based on household size and income level, so you don't have to keep each receipt for the year (and you definitely don't need to bring them all to your tax appointment!)
In addition to the table amounts, you'll be able to deduct sales tax on any big ticket items like cars, boats, etc. We have to leave it at "etc." for now, because the IRS hasn't yet issued their final rules detailing this deduction. Be sure to check back later for more on this new savings opportunity.
Tuesday, November 16, 2004
A daily piece of our mind
Welcome to our new tax and business tips blog! We'll try to keep you up to date with potential or enacted changes in the tax law, and we'll explain how they apply to you. Also look for general business advice and tax planning ideas to help you save money.
Check back often for our latest thoughts and additions!
Check back often for our latest thoughts and additions!
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