How to Calculate Federal Income Tax to Pay to the IRS

How much you can take for a standard deduction depends on your filing status.  For a single filer the amount is $5,700, married couple filing jointly $11,400, head of household which could be a single parent with children can claim $8,350.  Over the age of 65 the amounts are different.  The IRS added extraordinary tax deductions in 2009 for the taxpayers that used the standard deduction may include federal tax deductions for real estates taxes that were paid, $500 single, $1,000 married.  They also included a sales tax deduction on a new vehicle as long as it was purchased after 2/16/2009 but before 12/31/09.

Online Federal Tax Tips

Looking to deduct medical expenses, not so easy.  You may only use this deduction if they exceed 7.5% of your income.  Also, some people pay toward their health insurance through their employers checks, these are not deductible since it is deducted out of untaxed money.  There is a list of allowable medical deductions which is long but good record keeping is a must.  Some may include expenses such as co-pays, glasses, dental work, nursing home care costs and even mileage getting to and from medical appointments.

State Legislators Can Take Special Federal Tax Deduction

When filing your tax returns you can review the 2010 Federal Income Tax Brackets (IRS Tax Rates).  When in doubt always seek professional tax help.

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Many people in a trade or business usually wonder about a list of tax deductions.  What can I deduct and what is allowed.  The most important is the expenses you incur in operating a trade or business as long as it is operated to make a profit.  An expense is considered to be ordinary and necessary. 

Keep good book keeping records by seperating your business expenses into catagories like, capital expenses, expenses for the cost of goods you sell and personal expenses.  Capital expenses are normally captialized and depreciated over a 7 year period then being fully deducted at one time, these are known as assets.  An accountant can advise you on which way they should be deducted.  Expenses for cost of goods would include any raw material, labor costs, etc… in manufacturing the products. 

Also on the list of tax deductions can be any business start up costs you incur.  Any business assets you purchase and improvements can be deducted.

List Of Tax Deductions | Self Employed 
List Of Tax Deductions | Self Employed

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If your place of business is in your home you may deduct part of your home expenses, which includes utilities, repairs, mortgage interest, insurance, property taxes, etc…  You may only deduct a percentage of your expenses which is calculated on the square footage space that you use to operate your business. 

Included on the list of tax deductions is the business use of your vehicle.  If you use your vehicle for business and personal you may only deduct your portion based on the actual mileage.  If your mileage is 10,000 miles per year and 2,500 miles were driven for personal use, your deduction would be 75% for business use.  A well maintained mileage log must be keep when this deduction is taken.

Get Information On Small Business Tax Deductions

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It is a good idea to hire a certified accountant that can assist you in the list of tax deductions that are allowed under the tax laws.  This will help in advoiding an audit which can be triggered by deducting items that are not allowed.

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I do have some experience in writing about home office deduction for small businesses.  We are a small business and work out of our home.  When filing your taxes and claiming a home office deduction the space must be exclusively for your business.  We have consulted with our accountant on which items are deductable, which items are not and the percentage of home space used for our small business.  Your deduction may be a room or space in a room as long as the space is identified as separate that you use for your home office deduction.

 The IRS states the following:
If you use a portion of your home for business purposes you may be able to take a home office deduction. 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.
    •For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
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.  There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

The IRS is very clear on the exclusive use required by setting aside a space in your home for your business.  You may work a few hours or all day and six or seven days a week but don’t violate the exclusive use requirement by allowing your spouse or children to use the space for personal use, you may surrender the opportunity for the home office deduction.

My Home Office Deduction 

Having a business in our home vs renting an office space somewhere else in a building has reduced our overhead costs.  It has saved on rent, electric, heat and phone costs.  Would I recommend a home based business and taking the home office deduction, yes.  This benefit has given alot of small businesses a chance to grow and survive.  Don’t be afraid to take the home office deduction thinking is will trigger an audit by the IRS.  Alot of changes in the tax laws since the late 90s have made it much easier for people to start a small business and work out of the homes. 

How do you calculate the business percentage of your home?  The home office deduction is calulated on the square footage of the space used for your business divided by the overall square footage of your home.  If your space measures a 12 x12, the square footage would be 144 square feet.  If your home measures 28 x 40, the square footage is 1,120 square feet. Divide the space square footage by the home square footage, 12.8% (144 ÷ 1120).

What does the 12.8% percentage really mean.  You may be able to deduct a portion of your mortgage interest, property taxes, home owners insurance, electric, phone, heat and any general repairs and maintenance.  Any expenses to maintain or make repairs to the space is fully deductible. 

Home Business Tax Deductions (Home Office Deductions) 

What you cannot do is create a tax loss to cover other income.  Your home office deductions cannot go beyond your business income. When in doubt always check with your accountant to see which expenses you qualify for.  Having a professional advise you in the start up or existing business is never a bad idea.  They can give you direction that is beneficial to your home based business.

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Hire a professional to review your tax deductions.  Don’t just hire an accountant or CPA to prepare your taxes, ask for a complete review of the tax deductions that will work in your favor.  You don’t only need a tax preparer you need a tax planner.

Listed below is just a few tax deductions that are not well known, business owners may not know they can deduct:

Corporate Meetings:  Each year you need to update formal company documents which is required by law, financial records, appointed officers and minutes of all meetings. Combine your vacation and corporate annual meeting as an owner.  The entire trip can be tax deductible.
 
Rewarding Your Employees:  Rewarding your employees with a check is not deductible.  You may give an employee a tax deductible gift which may include golf clubs, high def TV, furniture, etc.  Any type of gift other than cash.  You may reward an employee for the length of time they worked for the corporation, achievement in sales, or even for safety. 

Gifts to Other Businesses:  Giving a gift to another business owner or employee (purchasing agent) has an unlimited amount.  Many businesses owners may purchase promotional items imprinted with their business name and logo or different types personal items like gym memberships.

Educational Seminars:  These are tax deductible.  Training for new software, further knowledge of business operations or even something totally different that has nothing to do with your current business.

Relocating Expenses:  If you’re planning to relocate an employee, the moving expenses are tax deductible, it can be on the other side of town of the other end of the country.

Retirement Plans:  Contribute money in your retirement plan for yourself and/or employees, tax deductible.

Home Office Deduction:  If you use your home exclusively and regularly you can claim a business deduction on your home.
      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.
      For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
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.

With so many tax laws, take the time to research a professional tax adviser and preparer.  Some tax laws change from year to year which most people are not aware of.  I have found it beneficial in having our certified public accountant that can assist us in any questions we have and advise us with tax deductions, what is deductible and what isn’t.

Home Business Tax Deductions 

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Years ago purchasing promotional merchandise was fairly simple.  There were not alot of catalogue choices and the products were limited.  The promotional manufacturers only dealt with distributors of their products.  Overall the system performed well with speedy service, fair pricing and dependable delivery dates.  There were only several hundred distributors years ago.

The promotional merchandise industry has changed since then.  More choices to choose from in the product lines and thousands more distributors offering the promotional merchandise.  While the relationships between the manufacturer and distributor has basically remained the same.  Today you would not realize the difficulty in located products like rain ponchos, debossed leather jackets or coleman water jugs that customers experienced years ago.

Information on the internet has made an impact in locating any type or promotional merchandise for your small business.  You don’t need to set up an appointment with a promotional distributor, just click on their website and view the products online.  The distributor is only a phone call or email away to ask a question or request a sample of a product.  Choosing the right distributor to deal with may be alittle challenging.  I have found some of the smaller distributors are more knowledgeable and willing to assist their customers.  Smaller promotional merchandise distributors are normally run by the owners of the company and are hands on.

Many small businesses trying to compete to survive is not an easy task.  They need to attract the attention of new customers while trying to maintain their level of existing customers.  Marketing strategies need to be unique and beneficial.  Many small businesses may not have the budget to use the mass media like running newspaper ads, radio, television or outdoor advertising.  They search for an more economical way to promote their business name, message and their product line or service.

Promotional USB Drives 

Small businesses choose an alternative, using promotional products to market their products or services.  Giveaways have always been one of the best forms of advertising.  Promotional merchandise remains with the potential customer over a long period of time.  There are so many possibilities to be creative when choosing promotional merchandise.  Most distributors can assist in locating that perfect promotional gift.  For instance if you are a small business that offers computer service repair then the appropriate promotional item may be an imprinted computer accessory or you may be an auto repair garage that would choose a product in the automotive line.  The possibilities are endless.

So the next time you’re thinking of the best way to promote your small business consider using promotional merchandise to get the exposure you need.

REM visits PGA Merchandise Show 

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When attending trade shows you build relationships with customers, stay on top of industry trends and check out your competitors.  There is alot to gain for small businesses in marketing and displaying your exhibit that is appealing for a customer to stop by your booth.

Planning a strategy to attend a trade show is very important.  Cost is a factor, setting your goals and how to appeal to the current or potential customer.  Choosing the right booth location is so important, it can affect you receiving alot of traffic or very little.  Whenever signing up to exhibit at a trade show always look at the layout to see where the high traffic areas are located.  This may also effect the cost and size of the booth area.  You will need to figure out if the design of your display will work in the booth area. 

Trade Show Exhibit Reconfiguration

Using banners, display boards, covered tables and displaying your company information will allow your message to have a positive impact.  Choosing an imprinted promotional product to giveaway will assist you in marketing your small business. 

If you are planning to attend trade shows whether it is yourself or employees you want your company represented well, gather potential leads and generate sales.
 
There are many tactics your small business can use to ensure a winning trade show.  Once you have exhibited at a trade show and complied a list of new customers you can take the steps of a having a sales representative contact a customer by phone or direct mail.  The customer has prior knowledge of your company and product line and is more likely to speak with you or respond by mail or email.  So many relationships are built between a business and customers by trade shows attendance.   

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The Biz Bite with Whitney Keyes: How to market your booth at a trade show 

Tax time is right around the corner for individuals, small business owners and corporations.  All are looking for any type of tax break they can deduct out of the thousands of pages of the federal tax codes.  Many are going through their income and expenses to see where their bottom line will end up. 

Some individuals file their own taxes online but many business owners hire a professional accountant to perform that dreadful task.  You need to provide your accountant with any major equipment purchases, changes that occured during the tax year and possibility staff hiring or firing during the year.

10 Common Business Tax Deductions

SMALL BUSINESS TAX BREAKS

Employees – If you are operating as a sole proprietorship or S-Corp and have your spouse employeed in a flow-through entity this can lower your taxes by deducting the wages and contribute the funds to some sort of retirement plan, speak with your accountant.  If you hire a person under 18 in some states, dependents of the self-employed that qualify may be exempt from Social Security and Medicare taxes. 

Tangible Property/Equipment – Most business equipment is tangible property and is known as an asset.  Assets mainly are depreciated over a period of time, depending on the type of equipment, could be 7 years.  Some accountants may elect to deduct the entire purchase price in the same year.  These write offs must pertain to your business and be resonable.  When the economic stimulus package was signed section 179 set new, higher limits (and bonus 50% depreciation) that were first introduced in 2008 have been extended for 2009. This means the limits are almost double from previous (pre 2008) years.

When you purchase an asset and take the tax deduction you must also report when the asset was sold and the selling price.  Some assets may be sold for more than the purchase price and the difference is taxable income, which must be reported and taxes paid.  Most equipment purchases will depreciate and won’t be sold for a profit.  Speak with your accountant on this issue before selling any asset.

If you finance equipment, any finance charges that you incur may also be deducted.

Outside Sales – If you use a vehicle for your business and want to deduct mileage of your trips, it is required you keep a mileage log.  The government may change the current mileage rate allowed from year to year.  For the 2009 tax year the mileage rate is $ .55 per mile.  I believe this rate will change for the 2010 tax year to $ .50 per mile.

Home Office – When working from your home office, make sure the office space contains only items to operate your business.  Computers, business phone lines, faxes and office furniture if fully allowed for a write off.  You may also deduct a portion of the other expenses you incur in your home if they are necessary to operate your business like utilities, homeowners insurance, property taxes and mortgage interest.  This is usually calculated by taking your square footage of your office divide that by the total square footage of your home.  This percentage is what is allowed to be deducted as operating expenses.

Travel and entertainment – When traveling keep all receipts pertaining to hotel room, tolls and bridges and flights. If traveling for a coporate meeting these expenses are allowed if you keep records of the business activity that is conducted. Also note the reason for any employee that needed to attend.   As far as meals are concerned the government has standard deductions for this.  Employee or client meals are at 50% but if you are working past your normal working hours and buy dinner for your working employees this is 100%.

Health Insurance – A few years ago a small business owner could not deduct 100% of their health insurance cost.  This has finally changed where the small business owners can deduct the same cost like the big corporations have done for years. 

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Drew Miles on Maximizing Business Tax Deductions and Tax Write-offs