If you plan to run your small business out of your home you may be tempted to “write-off” many of your household expenses. But how do you know what is deductible and what is not? The IRS has some advice that may help answer the question: “Can I take a Home Office Deduction?”
Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible.
However, if you use part of your home for business purposes you may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.
In order to claim a business deduction, you must use part of your home:

Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or

On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.
“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.
Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.
Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use.  

    Did you recently move to another city for a new job or because you old job is now at a new location? A tax break may be coming your way.
     How far you moved and the amount of time you spend on the job will have a major impact on whether you qualify for the tax break. Moves that are only short hops and jobs that are short-term or part-time generally do not qualify. However, if you can satisfy the distance and time tests then job-related moving expenses that you incur may be tax deductible.
         You will meet the distance test if your new workplace is at least 50 miles further from your former home than your previous workplace was from that home.  For example, if your old job was 5 miles from your former home, your new job must be at least 55 miles from that home. 
      The time test requires you work full-time for at least 39 weeks during the 12 months immediately after your move. If you are self-employed, the time test requires you to work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after your move.  You can deduct your moving expenses on your tax return even though you have not met the time test by the date your return is due if you expect to meet the 39-week or the 78-week test as required.
      Members of the armed forces do not have to meet these tests if the move was due to a permanent change of station.
Reasonable moving expenses are deductible and include the costs of moving your household goods and personal effects to your new home. You can also deduct the expenses of traveling to your new home, including lodging costs.
     Meals eaten while in transit between your old and new homes are not deductible as moving expenses.  No part of the purchase price of your new home may be deducted as a moving expense.  You cannot claim a moving expense deduction for expenses covered by reimbursements excluded from income.For more information contact our office at :97 N Center St.

IRS speaking 

In a tax emergency, would you be ready?  Well organized records not only help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.

Fortunately, you don’t have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later. If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.

Mortgage Workouts, Tax-Free for Many Homeowners

There is now tax relief for struggling homeowners. If your mortgage debt is partly or entirely forgiven during 2007, 2008 or 2009 you may be able to claim special tax relief by filling out Form 982 and attaching it to your federal income tax return for that year.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from tax up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.  

Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. The debt must have been used to buy, build or substantially improve your principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

If your debt is reduced or eliminated you will receive a year-end statement (Form 1099-C) from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven. 

New Rules for Charitable Contribution 2008

Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement that you then donated to a local charity? 

Charitable contributions can be tax deductible, but you must have the proper records to support your deduction.  Due to the Pension Protection Act of 2006 the rules on recordkeeping for charitable contributions became a little more strict beginning in January 2007.  

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.  

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.  

Here are some additional tips to help you deduct your charitable contributions on your 2008 federal tax return.  

•             Charitable contributions are deductible only if you itemize deductions using Form 1040.

•             Contributions must be made to a qualified organization.

•             Used clothing and household items such as furniture, linens and appliances must be in good used condition.

•             Vehicle donations are subject to special rules.

•             To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the    qualified organization.

•             To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.

Mileage business rates are 50.5 cents per mile for business miles before 07/01/2008. Mileage business rates were increased on 07/01/2008 by 8 cents. After 07/01/2008 that rates are 58.5 cents per mile for business miles.

If you are the owner of the small business company you always have heaps of work, regarding your company finances. The fact is there and still do you need to go to the professional to take the stress off your shoulders?

Visiting with your personal accountant is similar to going to your dentist. Time is money; the longer you delay your visit the more it will cost you.

First you need to know how to set up your business and to consider advantages and disadvantages of every business entity (LLC, Partnership or C Corporation, etc).

You can spend many hours away from your business learning about entities on your own or you can hire a specialist who saves you time and gives you qualified advice on how to protect your hard-earned money.

But any way you are the specialist in your business, and to be competitive in your field you need to invest a lot of time. At the start, most of the entrepreneurs work in average of 12 hours a day.

In addition to your business can you learn everything about accounting and then handle it? Most likely the answer is no.

Your business’ finances are vital for your success, and your needs are unique. At the Me My Money and I, we take your individuality seriously, focusing on your business’ special situation and needs.

To make the right financial decisions for your company, you need Financial Statements; Balance Sheets, Income Statements and Statement of Cash Flow for every month of the business activity.

All of them are concerning to the company financial reports. What do you know from these financial reports are briefly described below.

From the Balance Sheet reports know what your company owns and what does it owe. Other words, you know your company resources and obligations of your company.

From the Income Statement reports you know the economic performance of a company for the given period. Other words, you know your gross and net income.

From the Statement of Cash Flows reports you know the amount of cash generated and consumed by a company through the following three types of activities: operating, investing and financing.

The statement of Cash Flows is the most objective of the financial statements because it is somewhat insulated from the accounting estimates and judgments needed to prepare a balance sheet and an income statement.

Real world and real understanding of your company finance goes beyond numbers on a page to show to a small business owner how accounting and bookkeeping come into play in your company.

Without good bookkeeping service you can not plan ahead (business planning), get organized, stay informed on the financial matters of your company, avoid costly mistakes, reduce costs and save time.

Why do small business firms fail? Not always because of competition but because of lack of financial information. You are making money, but where do they go to? What is the main outsourcing of your finance? The right answer gives you a huge benefit for your company.

Other benefits you are getting if you go to a professional accountant are the ability to focus on your core business, getting organized, staying informed, avoiding costly mistakes, reducing costs and saving time and improving your cash flow.

And one more great benefit is the good timing because all these benefits work only if performed in the right time. Timing is the key to your business’s success. With the help of a qualified bookkeeper and accountant you will have it under control and making the most profit.

Running a successful business takes more than just hard work but also making sure your hard work is profitable. Good record keeping provides you the solid foundation needed for excellent business growth.

Your company’s reliable financial information eliminates the frustration from your small business company and your financial reports become the powerful tools for surviving in today’s business world.