Work at Home? You May Qualify for the Home Office Deduction

Posted in Tax Tips

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The IRS has the following six requirements to help you determine if you qualify for the home office deduction.

  1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:
    • as your principal place of business, or
    • as a place to meet or deal with patients, clients or customers in the normal course of your business, or
    • in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
  2. For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.
  3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.
  4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
  5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on Form 1040 Schedule C, Profit or Loss From Business.
  6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587.

Ten Things About Capital Gains and Losses

Posted in Tax Tips

Did you know that almost everything you own and use for personal or investment purposes is a capital asset?

Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When you sell a capital asset, the difference between the amount you paid for the asset and its sales price is a capital gain or capital loss.

Here are 10 facts from the IRS about how gains and losses can affect your federal income tax return.

  1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
  2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
  3. You must report all capital gains.
  4. You may only deduct capital losses on investment property, not on personal-use property.
  5. Capital gains and losses are classified as long-term or short-term. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.
  6. If you have long-term gains in excess of your long-term losses, the difference is normally a net capital gain. Subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.
  7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2011, the maximum capital gains rate for most people is 15 percent. For lower-income individuals, the rate may be 0 percent on some or all of the net capital gain. Rates of 25 or 28 percent may apply to special types of net capital gain.
  8. If your capital losses exceed your capital gains, you can deduct the excess on your tax return to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
  9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
  10. This year, a new form, Form 8949, Sales and Other Dispositions of Capital Assets, will be used to calculate capital gains and losses. Use Form 8949 to list all capital gain and loss transactions. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated.

For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, or Publication 17.

Standard Deduction vs. Itemizing: Seven Facts to Help You Choose

Posted in Tax Tips

Each year, millions of taxpayers choose whether to take the standard deduction or to itemize their deductions. The following seven facts from the IRS can help you choose the method that gives you the lowest tax.

Remember, these tax tips concern your personal tax return only.  The business-related deductions on your business return (usually filed on Schedule C) are always itemized.

  1. Qualifying expenses – Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.
  2. Standard deduction amounts -Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2011, the amounts are:
    Single     $5,800
    Married Filing Jointly   $11,600
    Head of Household   $8,500
    Married Filing Separately  $5,800
    Qualifying Widow(er)  $11,600
  3. Some taxpayers have different standard deductions – The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you. If any of these apply, use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions.
  4. Limited itemized deductions – Your itemized deductions are no longer limited because of your adjusted gross income.
  5. Married filing separately – When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.
  6. Some taxpayers are not eligible for the standard deduction – They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
  7. Forms to use – The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

Small Business Health Care Tax Credit

Posted in Tax News

If you are a small employer. . .

              With fewer than 25 full-time equivalent employees?
              That pays an average wage of less than $50,000 a year?
               And pays at least half of employee health insurance premiums?

                               . . .then there is a tax credit that may put money in your pocket.

Employers–including non-profit organizations–can a tax credit of up to 35% of the cost they pay toward workers’ health care premiums.

The credit can carry both back or forward to other tax years, and because the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

Tax-exempt employers may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

And finally, if you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

For more information, visit the health care tax credit page on the IRS website.

3 Lessons Learned from SXSW

The South By Southwest Interactive Conference just wrapped up, and it was–as always–awesome.  Here are three conclusions I drew about the experience, and how to maximize the benefits of going to a conference.

1. It’s who you meet, not what you see.

Keith Ferrazzi had it right.  It’s the connections you make rather than the panels you attend or the celebs you gawk.  The random person you sit next to at a panel might be the one–or know the one–to help you take your project to the next level.  Be friendly and introduce yourself.  Sure, it might be a dud.  But then again, what’s a dud but a connection you don’t quite realize you have a need for?

2. There are dumb questions.  Don’t be the one asking them.

Your school teacher lied.  If you have the opportunity to ask a question of a person whose opinion or thinking matters to you, don’t blow it by asking a generic question like, “who are your influences?”  Generic questions get vague, generic answers.  Do your homework on the speaker and their topic, and frame your question accordingly.  The speaker will appreciate it and you’ll get better results… and no rolled eyes and dirty looks from fellow attendees.

3. Pacing yourself is healthy… and effective.

Big conferences–especially multi-day, multi-venue ones like SXSW–are marathons, not sprints.  In my first pass through the SXSW schedule, I identified 62 events I was interested in attending.  Many of these would be held at the same time, meaning I could not physically attend them all.  I wanted backup plans in case I decided to “vote with my feet” and not waste a time slot.  In the end, I only went to about 15% of the events I had scheduled.  But by far the most people I met–and the most interesting–was at an event I hadn’t originally planned to attend.  That wouldn’t have happened if I’d followed my schedule too rigorously.

N.B.: Mad props to Austin Kleon for autographing my copy of Steal Like An Artist.  His panel with Kirby Ferguson was one of my personal favorites.