INFORMATION
Topics that will interest most taxpayers
Time to Organize Your Records
January is the best time to create a collection point to hold W-2 forms, investment statements, and other tax-related documents. It could be as simple as a large envelope or a small accordion file. A few documents arrive in December, but most arrive throughout January and February. Then when you are ready to visit us, you have all your data at hand. Remember, the IRS gets a copy of most of these forms, so it’s best to wait for all your paperwork to arrive before making your appointment.
Are You a Volunteer Fireman or EMT?
Then you are entitled to a $200 to $400 credit against your New York State income tax. Your Accutax tax preparer will apply for the credit.
Kubiak's Rules for a Financially Happy Marriage
An overwhelming number of failed marriages cite financial troubles as a major factor in their breakup. As sad as this is, it really shouldn’t be too much of a surprise, because the way we use our time and money reflects our values.
And, of course, without a strong set of shared values, marriages drift apart. But dealing with finances together can bring a couple closer. After working with married couples for so long, I thought I should share four principles I’ve seen for building wealth and your marriage.
Start early
There’s no better time to establish the rules of a relationship than at the beginning. And every seven years you delay starting a savings plan cuts in half your ultimate net worth in retirement. Chances are you know someone who’s getting married soon, so forward them this email … it may well be more valuable than the check you write.
Work as a team on the budget
Shared activities help you build and integrate your values and keep your finances in sync with the rest of your life. Couples that share church activities or philanthropic causes typically do better financially, because their common vision allows them to work together, instead of pulling in different directions. They do well, while doing good.
The more opportunities to forge shared values, the better the marriage team. Even the simple process of creating and adjusting a family budget provides a forum for discussion of what is really important to the family.
A budget gives you more freedom, not less
Couples without a budget can, and often do, fight about every dollar spent. Every purchase is an opportunity for values and priorities to clash. But couples who have worked together on a budget are already in agreement on the big picture. Once the difficult decisions are made about what will help further the family’s values, the specific purchases in each category are much less critical.
Couples with a budget do not get concerned about spending until a category goes over the budgeted amount. Having decided how much money the family can afford to spend on clothes for him and her, it doesn’t matter as much if he prefers lots of inexpensive clothes and she prefers a few nice pieces, or vice versa. A budget allows discretion and freedom to prevail, with cooperation and teamwork.
Always pay yourself first
The best way to achieve your financial goals is by moderating your spending and staying on track with your savings needs. Only after you have saved several times your annual salary does the rate of appreciation become more important than the rate of savings.
To pay yourself first, set up an automatic monthly transfer from your checking account to an investment account where your contribution is automatically invested in a diversified portfolio. Even a small amount makes a big difference. Just five hundred dollars a month (that’s just $6,000 a year) at 11.5% annual interest would compound to a million dollars by the middle of the 26th year.
Money makes money. And the money that money makes, makes even more money.
12 Big Deductions for Small Businesses
- Home office
- Office supplies
- Telephone
- Furniture
- Computers and equipment
- Software and publications
- Automobile mileage
- Travel, meals, entertainment, and gifts
- Insurance premiums
- Retirement contributions
- Self-employment tax (Social Security)
- Hiring your child
Home office
A home office is a space devoted exclusively to your business. It could be the room where you write invoices and do cold calls, or the garage where you store inventory or equipment. The home office can be a section of a room, as long as it is used exclusively for business. The IRS is unyielding on this point.
The home office deduction is calculated using a percentage of the exclusive-use area to your total living space, or by using a simplified formula, whichever is more advantageous tax-wise. The total cost of maintaining your home during the year includes rent or mortgage, homeowners insurance, utilities, and certain repairs.
Office supplies
You can deduct every office supply you purchase to carry on your business, like paper and pens and postage. Each expense can offset your business earnings, trimming both your income tax and self-employment tax. Do not include phone equipment, computers, software or furniture in this category. These items may have to be depreciated over a period of up to seven years.
Telephone charges
Deduct 100 percent of the cost of telephone equipment and service that is dedicated exclusively to business use. If, like most people, you also have a landline for personal use at home, those charges are not deductible. But if you make specific long-distance toll calls from that phone that are itemized on your monthly phone bill, you can deduct their cost.
Calls from a cell phone are business expenses, too. For example, if you use your cell phone half the time for business, deduct 50% of your annual service fees, including the cost of equipment.
Furniture
Office furniture must be depreciated. A portion of your costs can be deducted as a business expense over seven years, or up to 100% can be taken as a Section 179 expense. For the 2007 tax year, a business owner can expense up to $110,000 under Section 179, including acquisitions or furniture, computers and other equipment that the IRS deems as depreciation property. Your Accutax tax specialist will elect the method that gives you the most benefit by comparing the tax savings this tax year with those over future years.
Computers and equipment
Items such as computers, copiers, fax machines, and scanners also are tax deductible. As with furniture, you have a choice: Take 100 percent upfront or depreciate the cost, in this case over a period of five years. Buy a cell phone? Depreciate the purchase price over three years or expense it under Section 179.
Software and publications
Not long ago a company had to depreciate the cost of computer software over three years. But now, prepackaged software can be fully expensed under Section 179 in the year purchased. Trade magazines and subscriptions to business publications continue to be fully deductible in the year you pay for them.
Automobile mileage
Deduct the business use of your car one of two ways, depending on which method trims the most taxes. The first is the standard mileage deduction method. Add the miles put on your car or truck during the year and multiply by the standard amount determined by IRS. You will also deduct toll charges, but as a travel expense.
The second is to compare your business usage against total usage for the year. Track every associated expense, such as gas, repairs, lease or interest payments, and insurance. Next, apply the percentage of business use to the total expenses. For example, if 12,000 out of a total 20,000 miles are business use, and total automobile expenditures are $3,000, deduct 60 percent, or $1,800.
If your business is not home-based, driving to and from an office is considered by the IRS as commuting and cannot be written off. But keep careful track of the distances in-between appointments or other stops you make while conducting your business, and put it in writing.
Travel, meals, entertainment, and gifts
The entire costs of travel and life on the road are fully tax deductible — air, bus, or train fare, car rentals, dry cleaning, hotel charges, and tipping. But meals are only 50 percent deductible. The IRS reasons you would eat at home anyway, or that if you have a meeting over a meal, the other half of the cost was incurred by the client. The 50 percent deduction applies to the costs of entertaining your clients, too. If you buy them gifts, 100 percent, up to $25 per person, is a deductible business expense.
Insurance premiums
Self-employed individuals who pay their own health insurance premiums may deduct the entire amount as a business expense, as long as the net profit of the business exceeds the amount or premiums. This deduction is taken away if you participated in another health care program, such as your spouse’s company medical plan. You may also be able to deduct premiums for long-term care insurance for yourself, your spouse, or dependents.
Retirement contributions
All contributions to a SEP-IRA, IRA, Simple IRA or Keogh plan come off your taxable income right on your Form 1040 or Schedule C, if you are self-employed. Be careful not to exceed the legal contribution maximum.
Self-employment tax
Self-employed individuals wear the hats of both employer and employee. That’s why the tax code requires them to contribute double the Social Security as other workers, who share paying halves with their employers. The total SE tax represents 15.3 percent of net profits, but in a small gesture of generosity, the IRS allows you to deduct half of the amount as a line item on your tax return.
Hiring your child
You may be able to trim some taxes by hiring your children. There are triple benefits: You deduct their salaries as a business expense. Neither you (the employer) nor your child (the employee) pay Social Security tax if the child is aged 17 or younger. And your child can put the money aside in an IRA to save for the future. This deduction is possible only if you operate your business as a sole proprietorship or as a partnership with only you and your spouse as partners.
45 Deductions You Don’t Want to Overlook
The tax specialists at Accutax and OwlView are versed in the latest rules and regulations and will determine which of these items may be fully or partially deductible from your income for federal tax purposes. In some cases, income limits and other restrictions must be met. In doubt? Keep a record, and your tax specialist will make an accurate determination for you.
Charitable contributions
1. Donations of goods to charity and appraisals of those gifts
2. Contributions by cash (with receipt) or check
3. Mileage on a personal vehicle while doing charity work
4. Appreciation on property donated to a charity
Taxes and real estate
5. State income taxes
6. State personal property taxes on cars and boats
7. Real estate, town, and school taxes
8. Mortgage interest on first and second homes, including homes on wheels
9. Points paid on a home mortgage and certain refinancing costs
10. Mortgage insurance premiums, mortgage prepayment penalties, and late fees
11. Commissions and closing costs on sale of property
Medical
12. Prescription drugs, including contraceptives, and co-payments for doctor visits
13. Contact lenses, eyeglasses, and hearing aids
14. Hospital services fees for laboratory work, therapy, nursing services, and surgery
15. Special equipment for the disabled
16. Alcoholism and drug abuse treatment
17. Medical transportation, including standard mileage deduction to any treatment or appointment and lodging while away from home
Job-related
18. Cell phones and service fees based on percentage of business use
19. Job-hunting costs, resumes, and employment agencies, unless changing professions
20. Moving and storage expenses if changing jobs and a distance test is passed
21. Cleaning and laundering services while traveling on business
22. Union dues
23. Subscriptions to professional journals
24. Trade or business tools with life of one year or less
25. Uniforms and protective clothing required at work
26. Personal liability insurance against wrongful acts as an employee
27. Education expenses to maintain or improve your job skills
28. Impairment-related work expenses for a disabled individual
29. Employee contributions to a state disability fund
Self-employment
30. Health insurance premiums
31. Half of self-employment tax
32. Depreciation on home computers
Investments
33. Penalty on early withdrawal of savings
34. Margin account interest
35. Investment advisory fees if billed separately
36. IRA Custodian fees if billed separately
37. Safe-deposit box fee to store securities or collectibles
38. Worthless stock or securities
39. Foreign taxes paid on an overseas investment holding
Other
40. Tax preparation fees and accounting services for an IRS audit
41. Foster childcare expenditures and adoption expenses
42. Gambling losses that offset gambling gains
43. Lead paint removal
44. Legal fees incurred collecting alimony or a debt
45. Casualty or theft losses and appraisals of losses
NEED MORE DETAILS?
We offer a free consultation to help you understand your tax needs. Contact us or visit the Castleton Center office during normal business hours to get the information you need.