Working at home? Make it pay!

If you operate your business from your home, you may be entitled to claim the "Home-Office Deduction".

To qualify for the home-office deduction, the portion of your home that is used for business purposes must be:

used "regularly and exclusively"

your "principal place of business"

used for the employer's convenience (in the case of an employee)

You can also claim the deduction for any space you use "regularly and exclusively" to conduct administrative and managerial activities when you have no other fixed location to do so.

The deductions are limited. The office-in-home deduction can never create or increase a loss. Any disallowed expenses can be carried forward to future years.

We can help you determine whether you qualify for this deduction and the tax consequences if you eventually sell your home.

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Do You Know How Much Sales Tax You Pay?

Sales Tax deduction tables issued

As promised, the IRS has finally given us the tables we can use to calculate the sales tax deduction. (See our previous post on this deduction).

I'm a little underwhelmed at the tax from the table; for instance, a family of four that makes $70,000 is only given a $1,001 sales tax deduction. At 7.6% tax, that means the IRS assumes you only spend $13,100 each year on sales-taxable items. I guess if you back out all of the non-sales-taxable expenditures you make (rent/mortgage payments, groceries, utilities, etc.) it might approach reality.

Of course, you also get to add the tax paid on certain major purchases. These are now spelled out by the IRS as the following:

• Motor vehicles - (including car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle)
  
• Aircraft
  
• Boats
  
• Homes or home building materials

Specifically excluded -- sales tax paid on business purchases.

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Last-Minute Tax Tips for 2004

Gail Buckner from Fox News provides some good Last-Minute Tax Tips for 2004

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Keeping Track of Your Employees

A recent workshop that some of our team attended reminded us of the importance of maintaining the appropriate information in your employee files. Did you know that you could be assessed a $250 penalty for each employee file that does not contain the correct information?

The employee files should contain, at a minimum, federal forms W-4 (wage withholding information) and I-9 (proof of employment eligibility). Also, form I-9 requires you to review copies of the employee's documents verifying eligibility. Most businesses should protect themselves by keeping copies of the documents reviewed. (You can find copies of forms W-4 and I-9 in our forms section.)

If you use a payroll service (even from our office), keep in mind that the responsibility for maintaining these files still rests with the employer. Payroll services are not required to keep this type of information on file.

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Year End Reporting Requirements

As we head toward the end of the calendar year, we like to remind businesses of some of the more obscure requirements they face in year-end reporting. These are things you don't want to miss, or you risk exposing yourself to potential penalties.

1. 1099's: Generally, you must issue a 1099-MISC to individuals or unincorporated businesses who you paid more than $600 in rent or services during the year. A 1099-INT should be issued for interest or dividends paid in excess of $10.

2. Employer-provided vehicles: If employees (including owners!) are allowed to use a company vehicle for any personal use, the value of that use must be included in the employee's W-2 at the end of the year. We can calculate the inclusion amount for you; just use our form to send us the information.

3. Fringe benefits to owners: If an S-corporation shareholder receives certain fringe benefits, such as health or disability insurance, the amount must be included on their W-2.

4. Group life insurance: If you provide more than $50,000 of group term life insurance to an employee (again, including owners), there's a small amount that should be added to the employee's W-2.

This is just intended to be a heads-up to help you remember these requirements. If you need help with any of these calculations, please give us a call!

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Canadian Prescriptions Now More Taxing

Living in a state that borders Canada, we've all heard about the inexpensive prescription drugs available just north of us. Did you know that there can be a hidden expense to those prescriptions?

A recently released publication from the IRS regarding Medical Expenses reaffirms their position that the cost of buying medicine from Canada is NOT deductible. That's because importing medicine from foreign countries is technically illegal. Also, since the cost of these drugs is not deductible, the prescription expenses are not eligible for reimbursement from an employer's flex plan or medical reimbursement plan.

Eventually, you may see changes in the laws governing Canadian medicine imports. For now, though, if you're buying prescriptions from Canadian medical suppliers, be sure to exclude those costs from summaries you provide us for your tax return.

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Federal Unemployment Deposit Requirements Lowered!

According to the latest news from the IRS, life gets a little simpler for small employers as the federal unemployment tax deposit requirement is raised to $500 for 2005. This is a nice increase from the $100 deposit requirement in effect SINCE 1970!

The federal unemployment tax (FUTA) is charged on the first $7,000 of wages for each employee, each year. A business has to calculate their liability each quarter, and deposit the tax when their liability exceeds the IRS threshhold.

While this change doesn't reduce the amount of tax a business will owe, it will reduce the number of deposits required for many small businesses. Essentially, most businesses with less than 10 employees will only deposit annually...not a life-changing rule, but a definite timesaver.

Of course, the best timesaver is to hire your payroll out. Give us a call if you're interested in finding more on our payroll services.

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Make a New Plan, Stan

The foundational step to effective, year end tax planning is the creation of an accurate tax projection. The time spent compiling information for the projection is not lost time, as the information will also be used in the preparation of your final return. Jerri & I would like to help you with your year end projection. For many taxpayers, the cost of the consultation will be more than offset by the tax saved.

If you feel comfortable doing your own year end projection, be sure you consider the potential effects of the Alternative Minimum Tax (AMT) and the effect which the amount of your Adjusted Gross Income (AGI) has on the various phase-outs of deductions and credits. The amount of your AGI and your potential liability for AMT are basic to any decisions you make to minimize taxes.

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