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Q: |
What types of home office deductions are available? |
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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:
- Advertising
- Car and truck expenses
- Commission and fees
- Depreciation
- Insurance (excluding health)
- Interest on business real property
- Legal and professional services
- Office expenses
- Rent or lease of equipment
- Repairs and maintenance
- Supplies
- Taxes and licenses
- Travel
- Meals and entertainment (50%)
- Utilities
- Telephone, Internet service, cell phones
- Outside hiring costs
- Bank charges
- Dues and subscriptions
- Education or seminars related to business
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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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