Tax-saving tips for home-based businesses

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Managing a home business is a pretty heavy task, especially for solo owners. Because they juggle and oversee all of operations, some of them tend to overlook efficient tax planning, which could bring them considerable savings. Here are some tips to minimize taxes for home business owners, and to make sure these fiscal perks are availed of:

Maximize workspace deductions: A room or a space must exclusively be for business activities to be qualified for home office deductions. The office area should be divided by the total area of the house. This figure should then be converted to percentage, which represents the total home expenses that can be included in the home office deduction.

Deduct home utilities: In connection with the previous tip, a qualified home office means the owner can deduct a percentage of home utilities such as mortgage interest, utilities, insurance, etc. from the total home office deduction.

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Upgrade equipment: The costs of equipment which were purchased solely for the home office such as furniture or computers are also deductible as long as they were filed within the year the equipment were purchased. Even small office supplies such as ink toner, paper clips, etc. can also be fully deductible. The owner should be able to prove that all of those equipment and supplies arer regularly used in the home office.

Business trips: Expenses incurred from conferences, workshops, or client meetings can be deducted. Deductions include plane tickets, rental car, bus fare, lodging, and even half of total meal expenses for business trips.

Anthony Laxen is a tax manager and shareholder at Weber & Deegan, Ltd. in Edina, MN. He is also a member of American Institute of Certified Public Accountants. To learn more about tax management, visit this Google+ page.

Of Taxes And Personal Finances: Planning Them Jointly

Your taxes and your finances should be planned hand in hand. Strategic tax planning is a critical component of personal wealth management and if properly executed, can lead to the achievement of financial goals.

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Tax planning is much more than just keeping track of income and expenses. Rather, it is the practice of deferring and avoiding taxes through legal strategies. These include taking advantage of beneficial tax-law provisions, increasing and accelerating tax deductions and tax credits, and maximizing applicable breaks under the Internal Revenue Code.

Paying taxes is one of life’s largest obligations. The amount deducted from your monthly paycheck might not be too significant but all these withheld taxes add up to hundreds of thousands of dollars. This is why it is critical to align one’s financial goals with efficient tax planning. Employing effective tax planning strategies will make room for more money to save, invest, or spend.

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Tax planning is one of the keys in achieving financial stability. When setting financial goals, it is important to always plan with taxes in mind to gain a more accurate picture of your financial situation and to ensure that your money is spent well.

Anthony Laxen is a tax manager and certified public accountant based in Minnesota. He specializes in tax planning and compliance and business consulting in industries such as service, real estate, manufacturing, and wholesale and distribution industries. Visit this blog to learn more about taxes.

Taking Advantage Of Education Tax Credits

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Higher education can be costly and difficult to afford, which is why opportunities to reduce expenses should be grabbed and explored. There are three ways that taxpayers can take advantage of to help with the education expenses; namely tax credits, deductions, and savings plans.

A tax credit lessens the income tax one has to pay. A deduction reduces the amount of income that is subject to tax, subsequently reducing the tax needed to be paid. Savings plans generally accumulate regular deposits and earnings, growing tax-free until the money is withdrawn to enroll the student. While all of these have pros and cons, below are the tax credits taxpayers can use for their dependent or even for themselves.

To be able to claim an education tax credit, the student, who is the taxpayer himself or a dependent, pays qualified education expenses for higher education. He also must be an eligible student enrolled at an accredited or recognized educational institution. The eligible student must also be listed on the filed tax return.  

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The American Opportunity Credit provides a maximum annual credit of $2,500 for each eligible student. If the credit amount is greater than the amount of taxes owed, up to $1,000 of refund can be claimed.

The Lifetime Learning Credit meanwhile can provide an amount of up to $2,000 per tax return. Those who enroll in undergraduate, graduate and professional degree courses are eligible to claim this credit.

With education tax credits available, higher education should not have to be as burdensome as it was before. The pursuit of knowledge has definitely become more bearable.

Anthony Laxen is a tax manager and shareholder at Weber & Deegan, Ltd. To learn more about tax management, subscribe to this Twitter feed.

Giving Made Easy: Understanding Charitable IRA Rollovers

In December 2015, the “Protecting Americans from Tax Hikes (PATH) Act of 2015” was signed into legislation, making qualified charitable distributions (QCD) or charitable IRA rollovers permanently accessible to certain donors. 

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A QCD or charitable IRA rollover allows philanthropists to donate individual retirement account (IRA) assets directly to charity.

Qualifications for a charitable IRA rollover

• The donor must be 70 ½ years old or older
• The contribution must be transferred from the giver's traditional or Roth IRA account directly to a charity
• The donor's IRA trustee cannot transfer their IRA assets to a donor-advised fund or private foundation.
• The donation must be made directly to an eligible public charity
• The application must be completed and filed within the applicable tax year

Qualified donations are capped at $100,000 each year.  Donors can split the amount between several charities if they so wish.  Donors can give more than $100,000 but the IRS limits the exclusion from gross income to the cap amount.

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Charitable IRA rollovers are not tax-deductible, but since they are not included in the adjusted gross taxable income of donors, they cannot prompt high Medicare premium or higher taxes.  In addition, charitable IRA rollovers count towards the annual minimum required distributions (MRDs) donors need to take from their IRAs annually.

Charitable individuals who wish to take advantage of the benefits of an IRA charitable rollover should seek advice from a knowledgeable tax professional.

Anthony Laxen is a Minnesota-based tax manager and certified public accountant specializing in business tax compliance.  For related articles and news, please subscribe to this blog.

Even the Odds: Things to Remember to Avoid Audits

Audits are not random, as most people think. The Internal Revenue Service (IRS) uses a program to cross-reference taxpayers' reports with that of the prevailing average of that particular income bracket. Although completely out of left field tax audits do occur, they are far from common.

Random tax audits cannot completely be prevented, but their likelihood can be reduced with the proper understanding of how they are conducted. This is especially true with certain occupations that are paid in cash, which due to the frequency of misreported returns are more likely to attract audits than most other jobs.

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First things first, taxpayers must watch out for red flags in their tax returns. Errors are the most common causes of audits and are also the easiest to avoid. Double checking returns before filing and being aware of possible red flags and errors can significantly reduce the likelihood of an audit.

One of the things to remember is that caution to avoid audits should not deter taxpayers from seeking deductions they would otherwise be qualified for. An audit shouldn't be much of a concern, after all, if the deductions are properly documented.

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Finally, honesty is the best policy. Taxpayers should report all their taxable income, including capital gains while providing adequate and clearly stated reasons for any variances in their reports.

An accountant specializing in tax compliance, Anthony Laxen is a shareholder at full service accounting firm Weber & Deegan, Ltd., in Edina, Minnesota. Visit this website for more on his firm.