Ten Tax Tips
It is tax season again, everyone’s least favorite time of year. There’s a mountain of paperwork, and so many confusing laws and regulations that you need a special decoder ring to get through your tax forms.
Well, at IAC-EZ, we try to make even tax time EZ for you. Here are ten tips that US-based businesses and individuals can use as you prepare your taxes.
Tip 1: Maximize your deductions
Take advantage of the Section 179 Depreciation Deduction where you can. This year, the limit doubled over 2007. Now, you can deduct up to $250,000 in depreciable assets, which means you can maximize your equipment investments!
Tip 2: Deduct your student loan interest
Small business owners can use whatever help they can get in both their business tax and their personal tax. Make sure that you are deducting your student loan interest (from on your personal income tax)
Tip 3: The benefit of a bad year
2008 has been tough for many people. And although we all hope it ends soon, we might as well wring whatever benefit we can out of it. If your business has suffered financial losses in 2008, both your overall business and personal taxable income will be reduced. Make sure you have your year-end statements from investment brokers that clearly reflect these losses. For small businesses suffering a net operating loss, remember that you may opt to carry it forward to 2009.
Tip 4: Are you deducting everything you can deduct?
This article at the IRS site is helpful in identifying business expenses that impact your income tax. But it can be easy to miss important expenses, especially if you’re not using a service like IAC-EZ. One step you should take is to imagine that you are a tiny fly sitting on top of your product (or service) as it is being formed from raw materials to finished product, through the warehouse and out to the customer. As you do that, think about each part or process or role or equipment used to bring your product or service together. And, think about how it impacts your taxes: Is it a business expense? Is it a depreciable asset? In doing this, you might find ways to reduce your taxable income that you had not considered!
Tip 5: Avoid these red flags
No one wants an audit, even if you have done everything perfectly. Audits can turn your life inside out and upside down. In determining which small businesses to audit, the IRS looks at a couple of the following factors:
• If your business has a net operating loss three years in a row, the IRS could consider your company to be a hobby rather than a business.
• Excessive meal and entertainment expenses, excessive travel expenses (when a business is in a category that does not require high levels of travel) and non-matching inventory and balance sheet reconciliations are also red flags.
Tip 6: Be sure to deduct all available medical expenses
Most people know that they can deduct their out of pocket (non-insured) medical bills. But you may not know that you can deduct the cost of medical supplies that are recommended but not prescribed by a doctor. Be sure to include those deductions as well.
Tip 7: R&D was never more tantalizing
It takes innovation to outpace your competitor, but that costs money. Did you know that you can deduct some of your Research and Development costs? According to the IRS, some of your R&D costs can be deducted. Check this page out for more information.
Tip 8: Never stop learning
As a business owner, freelancer, or entrepreneur, it is imperative that you stay educated to stay competitive. If your business is to your competitors as a black and white television is to the latest hi-def flat screen, then it’s time for a brain upgrade. You can use the Lifelong Learning expense deduction on approved educational costs. Visit the IRS website for more information.
Tip 9: Fleet vehicle credits
Okay, it might be a little late for this year, but next year you should consider this: The IRS offers credits for alternative fuel vehicles. So if you run a fleet and you’re buying vehicles next year, look into a green vehicle. The initial price might be a little more, sure, but fuel prices are considerably lower and there is also the tax consideration. (Oh, and imagine how much more your customers will love you because you’re not polluting the air that their children will breathe). (Reference: http://www.irs.gov/businesses/corporations/article/0,,id=202341,00.html)
Tip 10: Tax returns can be leveraged
This is my favorite tip because it turns that painful tax return into a business-building analytical tool: Make sure your total annual expenses are not too large a percentage compared to your overall income. Make adjustments as necessary. For example, if your advertising expense is consuming 50% of your income, it is probably too high. Use your tax return to analyze percentages and create next year’s budget.
BONUS TIP
Don’t forget that your monthly subscription to IAC-EZ is a tax deductible expense!
Jessica Routier
Jessica wants to talk to you! She is who coordinates the contests, travels to all the conferences, and interfaces on a fun level with customers on a daily basis in order to bring our users together as a community.
Jessica has a B.Admin and an MBA. Her background in business, along with a diverse skill-set (including a diploma in Medical Transportation, retail experience, and experience as a paralegal) make her a valued, highly flexible team member.
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