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Q: |
What types
of home office deductions are available? |
A:
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The business percentages of the following expenses are
deductible on your tax return:
- Mortgage interest
- Real estate taxes
- Home repairs & maintenance
- Rent
- Utilities
- Depreciation
- Home insurance
- Security system
Business percentage of the home is determined by
dividing the area (sq. ft.) exclusively used for business by the total area
(sq. ft.) of the home.
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Q: |
What other
deductions can I take for business? |
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A: |
Common
deductions include the following:
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Q: |
When do I
need to start making estimated tax payments? |
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A: |
You make
estimated tax payments when your estimated tax due exceeds $1000 and you
will not have any withholding for the year. Analyze your net profit or loss
from your business throughout the year to avoid any year-end surprises.
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Q: |
Is it
better to buy or lease a car for business purposes? |
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A: |
Reasons to buy:
- You can choose the standard mileage rate in the
first year the auto is placed in service and switch to actual expense
method in a later year if it becomes more favorable.
- You intend to keep the vehicle at least four years,
or until it is ready for the junkyard.
- Vehicle is driven more than 15,000 miles per year.
(Most lease contracts have a 15,000-mile per year limit with additional
charges for every excess mile.)
- You have cash for the purchase or down payment and
the car is not subject to the “Luxury Auto” rules.
Reasons to lease:
- You want lower monthly payments with little or no
money down. Monthly lease payments usually average about one-third less
than loan payments on a comparable vehicle.
- Calculating deductions on a leased auto is much
simpler than calculating allowable depreciation figures.
- You want a high-priced vehicle or one that is
difficult to resell. Tax advantages of leasing over buying increase with a
car’s value and percentage of business use.
- Leasing suits you if you want a new car every few
years and would have to borrow to pay for a new one.
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Q: |
How do I
set up an accounting system to make it easier for tax time? |
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A: |
Set up
your accounts for all the deductible income and expenses. Then properly code
each check and deposit to the correct account. Reconcile your bank and
credit card accounts regularly. Review reports quarterly if not sooner to
see if you have a net income or loss. Do the same for your personal records
on a separate database from your business.
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Q: |
What are
the most common “overlooked” deductions?
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A: |
Local self-employment taxes and licenses
Depreciation expenses for furniture and equipment
Car and truck expenses
Charitable contributions
Political contributions for state deduction
Paying the 4th quarter state estimated tax in
December
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Q: |
Is the
interest paid on investment property tax-deductible? |
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A: |
You can
deduct the interest on investment properties on Schedule E along with your
other expenses related to renting out the investment property. If it is a
second home, then you would be able to deduct the interest on Schedule A
along with your principal residence.
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Q: |
What real
estate “closing costs” are deductible? |
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A: |
Loan origination fees or “points”
Local property taxes
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Q: |
What
“closing costs” add to the basis of the property? |
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A: |
Attorney’s fees for counsel in purchasing the
property
Real estate broker commissions
Miscellaneous abstracts of title, surveys,
recording of deed, etc.
Real estate taxes, back interest, repairs owed by
seller and paid by buyer
Tax service fees
Title policy fees and title insurance
Transfer taxes
Utility service installation
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Q: |
Should I
incorporate my business?
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A: |
You might consider incorporating once your business is
profitable and you can take a monthly salary. There are both business and
legal advantages for becoming a corporation. Call our office for a free
consultation with Julia Fitzgerald.
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