Seven Key Tax Deductions for the Self Employed
As a sole proprietor, it's wise to familiarize yourself with the some key deductions that may reduce your tax bill for 2004.
Small-business consultants generally recommend that you hire an accountant to prepare your tax returns, payroll and financial statements. But you should also meet with your accountant well before the year-end rush to discuss such matters as tax planning, and record keeping for tax deductions.
Seven common small business tax deductions:
1. Employee Benefit Plans - You may deduct contributions to employee benefit plans (such as health insurance plans and retirement plans). Depending on your circumstances the maximum contribution that you may deduct per employee in a qualified retirement plan can go up to:
$100,000 or more For a Defined Benefit Plan
2. Automobile Expenses? You can elect to deduct the actual expenses incurred (including gas, oil, tires, repairs, insurance, depreciation, and rent or lease payments) for the business-related portion of your car or truck expenses, or simply take the 2004 standard mileage rate of 37.5 cents per business mile.
3. Taxes - You may deduct Social Security and Medicaid taxes paid to match required withholdings on employee wages, federal unemployment taxes, sales taxes and real estate or personal property taxes paid on business assets.
4. Home Office - Depending on whether you use your home or other real estate for business purposes, you may deduct some or all of any mortgage interest paid, as well as some or all of the maintenance and repair expenses associated with the property. The cost of utilities and business supplies associated with business use are also deductible.
5. Depreciation ? Depreciation may be taken on passenger cars, equipment used for entertainment or recreational purposes (i.e., photographic equipment, cell phones and computers), as long as these items are used solely for the business.
6. Professional Fees - You may deduct professional fees, such as those paid to a lawyer or accountant.
7. Meals and Entertainment - You may deduct 50 percent of meal and entertainment expenses directly associated with the conduct of your business Remember to keep on file the records and documentation necessary to substantiate all of your deductions.
Daniel Lamaute, of Lamaute Capital, Inc. specializes in setting up retirement plans for small business owners. http://www.InvestSafe.com
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Small Businesses Filing Amended Federal Tax Returns to Recover Money By Darren Oliver April 15th may be gone but, but certainly not forgotten ? especially if you, like millions of small businesses, unknowingly overpaid your federal taxes and can recover money by filing an amended return. According to the IRS tax code, you have three years from the filing date for the tax year in question to file an amended return. For example, if returns for the 2003 tax year were filed on March 1, 2004, the taxpayer has until March 1, 2007 to file an amended return. This same rule also applies if the taxpayer feels they have made errors resulting in a balance. Most business owners either prepare their business taxes themselves or have a tax preparer or accountant do them. With either method, the tax liability can be calculated as higher than it actually is because of missed deductions, unrecognized changes in tax laws or just plain being given bad advice. There are a number of applicable deductions which many tax preparers often miss from home office deductions to self-employed health insurance to personal assets converted to business use. Although some deductions may seem minor, over an entire year, they can add up to thousands of dollars. Another area, which causes many businesses to overpay, is being given incorrect advice by their tax preparer or even the IRS directly. In a poll performed by Money Magazine, the average tax preparer produces an average of 480 returns between February 1 and April 15, making it difficult for each return to get the time and attention it deserves. This same poll also found there was an average discrepancy of 300% between what the tax preparers said was due and what was actually due. Furthermore, in the IRS's 2001 assessment of their own call centers, they found that 50% of the time, their representatives gave incorrect or insufficient advice. Whether a business owner does their taxes themselves and had to call the IRS for clarification on an issue or a CPA did, odds are the answer was not correct. The United States tax law is one of the most complex in the world. Not to mention, tax laws change every year and have changed tremendously in the last couple of years. Even the best tax preparer, CPA or even IRS representative can, like all humans do, easily make a mistake. In 2002 alone, 3.3 million taxpayers filed an amended return. Samuel Rowley, owner of Muffler Masters in Colorado, was able to recover $14,500 through the filing of an amended return when it was found that he overpaid FICA and payroll taxes. Another small business owner, Karen McClafflin, owner of home-based Secret Canyon Realty, was able to recover $11,000 when her tax preparer failed to include home office and automobile deductions in her past returns. Why is it that when faced with a life-threatening surgery a second opinion is immediately sought after but, when trusting thousands or millions of dollars to an individual or entity, it's done without question? Businesses must get a second opinion, whether it is done before or after the return is filed, to ensure they are not overpaying or simply to ensure their returns are accurate in all aspects. If not, they could be leaving thousands of dollars on the table.
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