Is Your Small Business Taking Enough Deductions?

CNN Money just published a great article exploring the myriad ways that small businesses actually help the government screw them out of more tax money than they really should pay. It’s worth your time to check it out and see if you are due more deductions than you’re actually taking.

The article suggests reviewing things like the way that your deductions are categorized. A great example that they use is that small business owners will sometimes categorize their hotel bill for out-of-town trips at “entertainment” which only gives them a 50% deduction. The correct category, “lodging,” will garner 100%. Which deduction would you rather take?

The article is full of useful suggestions like that. But don’t take it too far! The author makes a great suggestion: the laugh test. If the proposal of a deduction causes you to snicker – like the lawyer who invited his clients to his daughter’s wedding then tried to write the expense off as a business meeting – then you’ve probably gone a deduction too far!

Eleventh Hour Tax Law Changes Causing Trouble for Taxpayers

What happens if you don’t pay your taxes? The IRS comes after you, right? But what happens if you pay too much in taxes by missing some deductions that are due you? Nothing.

Deductions are up to you and your accountant. You can’t really blame the IRS for this reality; they’ve got their hands full with processing on-time taxes and dealing with deadbeats. But what if you don’t know about the deductions? This is what’s happened with some eleventh hour tax bills passed by Congress.

The new tax laws, designed to help the tax payer, are creating their own set of problems because they are getting passed so late in the game. When this happens the IRS doesn’t have time to publish their documents for a given year with the amendments on time. So they have to decide whether to delay the release of these documents or simply issuing them without the amendments. Either scenario is a headache for taxpayers and a nightmare for accountants.

What to do if you think that you might be eligible for one of these last minute deductions? Well, given the nature of the situation it’s difficult for individuals to keep up with the minutia of tax law. But the IRS allows tax payers to amend previous year’s taxes for up to three years. Check out the IRS’s amended tax returns for more information.

Mileage Deduction Increase for 2008

If you drive for a living you know how expensive it can be. Besides the obvious rising cost of gas there are other expenses to worry about like maintenance, tolls, parking and insurance. You might feel just a little less strain from these expenses next year because the IRS is raising the mileage deduction rate from 48.4 cents per mile to 50.4. Two cents isn’t a lot but every little bit helps.

Of course it wouldn’t be the IRS if there weren’t a list of exceptions and qualifications. In this case, the deduction doesn’t apply if you’ve used any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

For more information check out IRS.gov.

‘Tis the Season to Give – Make Sure It Counts Next April

It is the time of year when a lot of taxpayers like to take the time to give something back. Whether you contribute money or property to your favorite charity, make sure that you are familiar with IRS regulations if you intend to claim a tax deduction.

In the first place, you need to know if the organization even counts. Some don’t. The IRS says that qualified organizations include, but are not limited to, “Federal, state, and local governments and organizations organized and operated only for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.” It’s best to check with the people that run the organization itself; they’ll know. Be sure to get the appropriate paperwork from them if the contribution is worth more than $250.

Time doesn’t count. While contributing your time to a charitable cause is certainly adminrable, it can’t count towards a tax deduction. Expense incurred can but not the time itself.

So, embrace the spirit of the season now. But just take a moment to review the IRS’s rules if you plan to claim deductions in April.

C'mon, IRS, Don't Be So Shy!

A couple of Senators want the IRS to speak up a bit about one of it's benefits.

In a letter to Acting IRS Commissioner Kevin Brown Senators Max Baucus (D-MT) and Chuck Grassley (R-IA) asked that the Saver's Credit receive a bit more publicity.

The Saver's Credit is a dollar to dollar tax deduction - up to $2000 - available to American tax payers that make contributions to a retirement account.

The Senators acknowledge that many taxpayers have taken advantage of this savings incentive but millions more haven't, most likely because they simply don't know about it. The lawmakers would like the IRS to make this deduction better known to the American taxpayer through a variety of measures, including adding a specific line for it to the 1040EZ form.

The Earned Income Tax Credit: Use it, don't lose it!

Many of us have heard about the Earned Income Tax Credit, but research shows that 15-25% of households entitled to it don't claim their credit. This is a crying shame, because these are some of the people who could use the extra dollars the most. While the wealthier folks have access to tax experts who can advise them on how to write off a whole assortment of things from business trips to office equipment and more, the lower income citizens aren't so lucky. They are less likely to seek out and have access to the information that will give them a tax break on something far more important--their children.

As with all tax breaks, there are a few requirements one must meet to qualify, but here is a quick rundown for single parent qualifying incomes that one must fall at or below:
$36,348 for two or more qualifying children
$32,001 for one qualifying child
$12,120 for no children

Yes, that's right, you don't even have to have a rugrat to qualify for the EITC (although you must fall within the age range of 25-65, among other things). Married couples filing jointly are allowed to earn $2,000 more in each category and still claim the credit (all figures are for the 2006 tax year).

So what kind of money are we talking? Well, the maximum credit in 2006 was $4,536 for two or more children, and up to $2,747 for one child. But wait, there's even more good news. There's no need to wait until you file your taxes in the spring to receive your credit; by filling out a W-5 with your employer, you can get advance EITC credits added to your paychecks during the year. It's a great way to make those sometimes skimpy-seeming paychecks stretch a bit further. Why let the government hang onto your money all year?

Let's spread the word about the EITC to those who need it most, and a lot of money can go back to its rightful owners.