In any home business you definitely have more tax advantages than if you were self-employed. The tax advantages become substantial when you consider how you can improve the profitability of your business by declaring all of the home business tax deductions you are entitled to.
You may be missing some very important deductions. You must itemize your deductions for your home business operation on a separate schedule just as you would for your personal deductions. Knowing which deductions you are entitled to can save your home business hundreds of dollars a year.
Here is some background information on how your income tax amount is arrived at by the IRS.
The U.S. taxation code states that almost all income is subject to federal income tax. The way that you, as the owner of your home business, arrive at the final amount of income tax is as follows:
Gross Income - (All Expenses + Miscellaneous Deductions + Depreciation on Assets) = Taxable Income.
Taxable Income X (Your Tax Rate) = Income tax for the fiscal year.
Here is a quick definition of the terms in the above taxation equation:
Gross Income = The total of all income for the year after the cost of the inventory has been paid for.
Expenses = All costs of doing business during the fiscal tax year. Examples include payroll, materials, supplies and interest on business loans, etc. To find out if an expense qualifies as a legitimate business expense, consult your accountant or the IRS.
Depreciation = This is the way of spreading out the deductibility of an asset over a period of more than one year.
The IRS has certain different depreciation schedules for different business property. This is done for assets like real estate, equipment and other assets with a long economic life. This method of taxation write-off has certain advantages. Be sure to talk to your accountant regarding proper depreciation rules. These rules are subject to change by the Congress and the IRS.
Miscellaneous Deductions:
This is an often misunderstood and overlooked way to save a lot of money on taxes. Remember that these types of expenses must be totaled up and declared on a separate schedule of your income tax forms.
Always track your expenses and be sure to save at least one copy of every deduction. You will be asked for proof of every transaction that is declared as a deduction if you are audited by the IRS!
Here is a list of some of the things you can deduct from your income taxes:
Business related expenses include:
1. Air fares
2. Auto expenses
3. Books and Magazines
4. Educational Expenses
5. Home Office Space* + a portion of utilities, telephone, and maintenance costs
6. Office Furniture
7. Cleaning Expenses
8. Meals with Business Clients
9. Laundry Expenses (When Traveling)
10. Advertising
11. Impairment-related Expenses
12. Licenses and Regulatory Fees
* If you own your home you must use the IRS depreciation rules to determine this deduction. If you rent you may also deduct a portion of your rent.
Check IRS Publication 535 to find out if you can deduct any or all of the above.
As you can see there are many deductions that are allowable for your home business. The best way to get more information on tax deductions and related information on income taxes is to go online to www.irs.gov. There you will find a helpful search engine containing thousands of government publications that you can research and print out if you need to.
Now you have a good idea of the deductions you are entitled to take. So do your research, keep track of your expenses and take all of the deductions you can for maximum profit every year.
By : Jeff Schuman
Jeff Schuman helps people make money at home by starting their own home business. For hundreds of money making ideas and articles please visit his website here: http://www.team-schuman.com
Thursday, November 26, 2009
Thursday, November 19, 2009
How Do You Get A Real Estate Tax Deduction?
Everybody loves a piece of land. That is the real limited resource we have on earth. And the government allows us some deductions on them too.
Real estate tax deduction is a policy whereby owning a piece of property like your house gives you many tax advantages. Some of these include:
1. Interest paid on mortgage: permissible unto a maximum if you have bought your first and second homes within $1.1 million.
2. Fee points: completely deductible points, these are arrived at when you have taken mortgages. One point converts to 1% of the original amount and this is literally thousands of dollars and completely deductible.
3. Equity loan interest: certain rules imposed by Internal Revenue department, but partially deductible as it are loan on your home credit.
4. Home improvement loan interest: interest on making improvement but remember, there is a slight difference between a repair and an improvement. You can flout the rules by knowing the difference.
5. Home office deduction: if your home doubles up as your office too, then this is the deduction to make.
6. Selling Costs: these are costs that you normally include like legal costs, transfer costs advertising and admin costs and so on.
7. Capital gains exclusion: is a house which you resided for two years in the past five years, you need not pay any capital gains tax. Married taxpayers can get a maximum limit of $500000 and 4250000 if filed individually.
8. Home moving costs: this is an option available to ones who are relocating. If you are moving to any other part of the stator country, claim it.
9. Property Tax: Finally, the real estate tax (property tax) that you pay to your local government is completely deductible from your federal income tax.
So you see, taxes are not really that harsh, if you plan and make the most of it. Just keep those years and eyes open and make a small payment to those smart tax consultants, they will ensure they will the rest.
About the Author
Find more about Tax Deductions at http://taxdeduct.net
Real estate tax deduction is a policy whereby owning a piece of property like your house gives you many tax advantages. Some of these include:
1. Interest paid on mortgage: permissible unto a maximum if you have bought your first and second homes within $1.1 million.
2. Fee points: completely deductible points, these are arrived at when you have taken mortgages. One point converts to 1% of the original amount and this is literally thousands of dollars and completely deductible.
3. Equity loan interest: certain rules imposed by Internal Revenue department, but partially deductible as it are loan on your home credit.
4. Home improvement loan interest: interest on making improvement but remember, there is a slight difference between a repair and an improvement. You can flout the rules by knowing the difference.
5. Home office deduction: if your home doubles up as your office too, then this is the deduction to make.
6. Selling Costs: these are costs that you normally include like legal costs, transfer costs advertising and admin costs and so on.
7. Capital gains exclusion: is a house which you resided for two years in the past five years, you need not pay any capital gains tax. Married taxpayers can get a maximum limit of $500000 and 4250000 if filed individually.
8. Home moving costs: this is an option available to ones who are relocating. If you are moving to any other part of the stator country, claim it.
9. Property Tax: Finally, the real estate tax (property tax) that you pay to your local government is completely deductible from your federal income tax.
So you see, taxes are not really that harsh, if you plan and make the most of it. Just keep those years and eyes open and make a small payment to those smart tax consultants, they will ensure they will the rest.
About the Author
Find more about Tax Deductions at http://taxdeduct.net
Wednesday, November 11, 2009
Federal Income Tax Deduction
The American laws are great fun to play with if you know how to handle them, but better be sure you know the rules, or else you fall into trouble.
The federal income tax deduction is a statutory requirement under the American laws. All American citizens who fall under this category have to pay this. Taxable income is calculated by removing (a) excluded income, (b) exemptions, and (c) permissible deductions from the individual's gross income.
The following are the heads under which you can avail the tax deduction:
1. Exemptions: Some common exclusion from gross incomes is:
I) Earnings made from life insurance contracts
ii) Earnings made from gifts and inheritances
iii) Proceeds granted for personal injuries
iv) Interest received from state and municipal bonds
certain conditions have to be kept in mind before availing these deductions.
2. Deductions: In addition to the standard deduction, some common "above-the-line" deductions include:
i) Trade/ Business expenses
ii) Alimony
iii) IRA contributions
iv) Net capital losses
v) Expenses incurred due to property used for income generation
income tax laws are not everybody's cup of tea and so should be handled with care.
3. The Standard Deduction: When individuals have minimal "below-the-line" deductions, they are directly granted a standard deduction. The standard deduction under different heads in 2004 was as follows:
i) Single $4,850
ii) Head of household $7,150
iii) Married filing a joint return $9,700
iv) Qualifying widow(er) with dependent child $9,500
v) Married filing a separate return $4,850
4. Miscellaneous Itemized Deductions: These usually include:
i) Interest paid
ii) Taxes paid
iii) Losses incurred
iv) Charitable contributions
v) Medical costs borne
Such miscellaneous deductions are permissible if and only if they surpass 2% of adjusted gross income.
5. Alternative Minimum Tax: applicable when minimum tax revenue is less than the predetermined amount. the individual would now be paying a very negligible tax and helps him in saving some money.
6. Itemized Deductions: The alternative to the standard deduction is itemized deductions. For the year 2004, the major items included in itemized deductions were:
i) State and local income and property taxes
ii) Donations made to charitable organizations
iii) Employee transference expenses
iv) Medical expenses incurred
v) Casualty losses
vi) Interest paid on mortgage
However, the individual can either avail standard deduction or itemized deduction.
the best alternative in understanding such a complex structure is to catch a person who knows the tax structure better and let him do all the work, but keep your eyes and ears open.
About the Author
Find more about Tax Deductions at http://taxdeduct.net
The federal income tax deduction is a statutory requirement under the American laws. All American citizens who fall under this category have to pay this. Taxable income is calculated by removing (a) excluded income, (b) exemptions, and (c) permissible deductions from the individual's gross income.
The following are the heads under which you can avail the tax deduction:
1. Exemptions: Some common exclusion from gross incomes is:
I) Earnings made from life insurance contracts
ii) Earnings made from gifts and inheritances
iii) Proceeds granted for personal injuries
iv) Interest received from state and municipal bonds
certain conditions have to be kept in mind before availing these deductions.
2. Deductions: In addition to the standard deduction, some common "above-the-line" deductions include:
i) Trade/ Business expenses
ii) Alimony
iii) IRA contributions
iv) Net capital losses
v) Expenses incurred due to property used for income generation
income tax laws are not everybody's cup of tea and so should be handled with care.
3. The Standard Deduction: When individuals have minimal "below-the-line" deductions, they are directly granted a standard deduction. The standard deduction under different heads in 2004 was as follows:
i) Single $4,850
ii) Head of household $7,150
iii) Married filing a joint return $9,700
iv) Qualifying widow(er) with dependent child $9,500
v) Married filing a separate return $4,850
4. Miscellaneous Itemized Deductions: These usually include:
i) Interest paid
ii) Taxes paid
iii) Losses incurred
iv) Charitable contributions
v) Medical costs borne
Such miscellaneous deductions are permissible if and only if they surpass 2% of adjusted gross income.
5. Alternative Minimum Tax: applicable when minimum tax revenue is less than the predetermined amount. the individual would now be paying a very negligible tax and helps him in saving some money.
6. Itemized Deductions: The alternative to the standard deduction is itemized deductions. For the year 2004, the major items included in itemized deductions were:
i) State and local income and property taxes
ii) Donations made to charitable organizations
iii) Employee transference expenses
iv) Medical expenses incurred
v) Casualty losses
vi) Interest paid on mortgage
However, the individual can either avail standard deduction or itemized deduction.
the best alternative in understanding such a complex structure is to catch a person who knows the tax structure better and let him do all the work, but keep your eyes and ears open.
About the Author
Find more about Tax Deductions at http://taxdeduct.net
Wednesday, November 4, 2009
Save On Taxes By Investing In Municipal Bonds
Bonds issued by the local, state, or city governments are known as Municipal bonds or debt obligations. The government uses the funds accumulated by issuing these for construction work, such as building hospitals, schools, sewer systems, highways or some other specific work related to the benefit of the public. This means that these investments issued by local governments help the local governments to finance certain projects.
Similar to other types of bonds, these also have a maturity date and a rate at which the value increases. When they reach their maturity date, the investors obtain their investment cashed in full. This investment is like a loan forwarded to the local government to assist it in its ventures. The interest received is the interest that the local government pays on the loan. The government sometimes issues these bonds to fill up temporary deficits in the budget or to finance some other urgent financial need of the local government.
Investments made in municipal bonds are similar to investments made in any other type. The difference is that these are traded locally and not publicly in big stock exchanges. People can purchase them at the capital building, the city hall, or any other hub of the government used for issuing these bonds. People learn about these investment opportunities through tabloids, newspapers, and financial papers that handle the local financial news. When a big city's municipal bonds are to be issued, the city releases this news on a much larger scale. The government contacts the former investors first, when issuing them.
Types
Municipal bonds fit into the following categories.
1.General Issue: The government guarantees these to the full credit and faith of the issuer. Large cities or states, that are financially stable entities, are usually the ones to issue these types of bonds.
2.Revenue: These guarantee an identifiable source of revenue in the future. The source of revenues, in this case, is usually mineral royalties or income from the city's utility payments.
3.Assessment: As the name suggests these bonds are based on property taxes and depend on the value of the property along with the health of the regional economy.
What The Experts Say
Experts consider investments in municipal bonds to be profitable because of their tax-free status. People are willing to invest in these bonds, even below the market rate. In this manner, the government earns a profit by issuing bonds as a cheap source of finance.
By: David Gass
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
Similar to other types of bonds, these also have a maturity date and a rate at which the value increases. When they reach their maturity date, the investors obtain their investment cashed in full. This investment is like a loan forwarded to the local government to assist it in its ventures. The interest received is the interest that the local government pays on the loan. The government sometimes issues these bonds to fill up temporary deficits in the budget or to finance some other urgent financial need of the local government.
Investments made in municipal bonds are similar to investments made in any other type. The difference is that these are traded locally and not publicly in big stock exchanges. People can purchase them at the capital building, the city hall, or any other hub of the government used for issuing these bonds. People learn about these investment opportunities through tabloids, newspapers, and financial papers that handle the local financial news. When a big city's municipal bonds are to be issued, the city releases this news on a much larger scale. The government contacts the former investors first, when issuing them.
Types
Municipal bonds fit into the following categories.
1.General Issue: The government guarantees these to the full credit and faith of the issuer. Large cities or states, that are financially stable entities, are usually the ones to issue these types of bonds.
2.Revenue: These guarantee an identifiable source of revenue in the future. The source of revenues, in this case, is usually mineral royalties or income from the city's utility payments.
3.Assessment: As the name suggests these bonds are based on property taxes and depend on the value of the property along with the health of the regional economy.
What The Experts Say
Experts consider investments in municipal bonds to be profitable because of their tax-free status. People are willing to invest in these bonds, even below the market rate. In this manner, the government earns a profit by issuing bonds as a cheap source of finance.
By: David Gass
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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