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Family Businesses Offer Tax Incentives

Author: Jenny Shilling

Family businesses come with a lot of advantages. In addition to providing unique marketing opportunities and fostering a sense of responsibility in your children, it also makes good business sense. The key is to hire your kids while they are young; they learn some valuable lessons, and you get a tax break.

That's right, you get a tax break for hiring your own children. Here's what you need to know:

• Your business must be unincorporated, which means entities such as sole proprietorships, partnerships and LLCs are eligible.
• Your child must be under the age of 18.
• The job they do must benefit the business. Basically, they can do any task that you would pay another person to do, whether it's packing shipments, running errands or cleaning the floors.
• You must pay them a reasonable wage for the tasks they perform and this wage must be consistent with what you would pay somebody else. Paying excess wages for menial tasks is not a good idea.
• You should pay your child regularly, just as you would any other employee. Paying them a lump sum at the end of the year raises a red flag with the IRS.

The reason that hiring your children makes such good business sense is that you gain the following tax benefits:

• You can pay up to $5,950 with no tax liability for either of you.
• You can deduct these wages as a legitimate business expense.
• Your child can fund an IRA and increase their earning potential for the year. In addition to building their retirement savings, they will be able to earn an additional $3,000 beyond the $5,950 limit.

It is important to know that your child will likely have to have federal income taxes withheld, but they will get it back after filing their tax return for the year. Work with a qualified tax professional to make sure you follow all the rules and make the most of this benefit.

The Tax Office Inc. can help you identify other sources of tax savings for your business. Put our business sense to work for you; contact us today to schedule a meeting.

Don't Miss Out Due To Changes In Tax Law

Author: Keith Huggett

Taking advantage of tax breaks is a great way for small businesses to keep more of their profits. However, because the tax laws change frequently and can be quite confusing, many small business owners miss out on some of these opportunities.

Check out this list of seven tax breaks for small businesses. How many of them have you claimed?

1. Work opportunity credit: If you hire employees from groups such as veterans, ex-felons, high-risk youth, summer youth employees or an individual with a mental or physical disability, you may be able to claim up to $6,000 of that employee's qualified wages.
2. Disabled access credit: If you update your business facilities to accommodate a disabled employee, you may be able to claim up to $5,000.
3. Small business health care tax credit: You can claim up to 35 percent of the cost of health care premiums for your employees.
4. HIRE Act tax credits: If you hire and retain an employee who has been unemployed for more than 60 days, you can claim up to $1,000.
5. Fuel and alternative vehicle credits: Various credits can be claimed for making your business more environmentally friendly. This includes the use of biodiesel and other types of eco-friendly fuels.
6. Empowerment zone credit: If your business is located in a designated empowerment zone or renewal community, you can claim tax credits for each employee who lives and works in the zone.
7. Retirement plan credit: If you start a new retirement plan for your employees, you can claim a $500 tax credit.

All of these tax breaks come with certain eligibility requirements; a qualified business tax professional can help you identify the ones that you can claim and help you complete all the associated paperwork.

If you want to find out which tax breaks you might be missing, call the experts at The Tax Office Inc. for an evaluation. We can help you save money at tax time and throughout the year with tax planning and business services. Contact us today to learn more.

 Are You Claiming Everything You Can?

Author: Lani Coggins

Every business owner knows there are only two ways to improve your bottom line: generating revenue and reducing expenses. Taxes are a business expense – likely your single-highest cost each year – so you want to do everything possible to maximize your tax deductions.

Fortunately, there’s still plenty of time left to get better organized for the 2012 tax year.

Organization is the key. If you plan ahead, you’ll be well-prepared to capture all important tax deductions that apply to your home business. Here are some things to think about:

Save your receipts. A $100 business expense could equal as much as a $50 tax deduction. Need we say more? But if you’re audited, you’ll have to prove your claims, so receipts are critical. Knowing in advance what tax deductions you’re allowed helps you know which receipts to save. The best advice? Save all of them.

You can file your paper receipts, or use special software or even online applications to track expenses. As long as you’re organized, tax deductions won’t just fall through the cracks.

Of course you should always consult a professional for detailed tax planning advice, especially to understand the opportunities and limitations of each type of deduction. But here are some specific potential savings you may not be exploiting for your home business:

• Startup expenses, if it’s your first year in business and you’re not making money yet.
• Office supplies and equipment.
• Home office expenses, based on the percentage of space allotted to your office, including rent or mortgage payment, utilities, communications, insurance, property taxes, security, etc.
• Research and education expenses.
• Mileage and other auto and travel expenses.
• Health insurance premiums.
• Moving expenses, whether you move your home or move your office from home to an independent office space.

Are you claiming everything you can? Contact a tax professional now, rather than waiting till tax time when it’s too late. Our experts here at The Tax Office Inc. can help assess your situation and advise you on how to capture all tax deductions available to your home business.

Documentation Is The Key

Author: Keith Huggett

A home office is a legitimate business expense, but some associated write-offs might trigger an IRS red flag if you're not careful. Although the guidelines are very specific, the home office deduction is a category that is easy to abuse, which is one reason the IRS takes note when you claim it.

These top three write-offs could trigger an IRS red flag, but if the expenses are legitimate and you have the documentation to back them up, claiming the deduction can save you a lot of money:

1. Depreciation: Any office equipment or furniture you purchase for your home office can be depreciated over five to seven years. If you own your home, you can also depreciate the portion of your house that is used as an office over 39 years. Like any depreciation expense, you must accurately track the method of depreciation and claim it only while the property is still in service.
2. Real estate expenses: If you pay real estate taxes or mortgage interest, a portion of these expenses may be deductible. The important factor here is the percentage that you are allowed to deduct. Claiming too much is an IRS red flag that can be avoided by accurately measuring the square footage of your home and the office space within it. Claim only the percentage that you actually use as an office and the expense is legitimate.
3. Business expenses: You can claim a portion of your utilities (the same percentage used to calculate real estate expenses), and cleaning, repair and other related business expenses. Again, only claim what you actually use for the business and you should be able to overcome any IRS red flags.

If your business is based only from your home, the calculations can be fairly straightforward, but it gets more complicated if you also work from a business office. If you're concerned about raising IRS red flags, work with the experts at The Tax Office, Inc. We can help you decide which expenses to claim and ensure that you maintain accurate records, while still allowing you to get the most from your business deductions. Contact us today to learn more.

Six Things You Should Know About It

Author: Lani Coggins

If you can legitimately take the IRS' home office deduction on your taxes, you're a winner twice over. You've been able to take an unused portion of your home and turn it into productive space for a business that you've launched yourself.  You win again because this element of the 1040 can reduce your tax obligation.

But the IRS scrutinizes this deduction carefully to make sure that you're not just trying to get a write-off for a hobby.

To make sure that you qualify to get the full benefit with minimal risk, here are six things you should know:

• You must use the space in connection with a trade or business, not just for a profit-seeking activity.
• Your home office must be used exclusively for your business. A room with a desk and a computer that you also let your children use for homework or that you use to surf the Internet is not a home office.
• You can deduct space used for storage or inventory if it meets certain eligibility requirements.
• Your home office must be a principal place of business. If you work for a company that provides you with an office at its location, you will not be able to take a home office deduction for that business unless you are doing so for the convenience of your employer and are not "renting" that office space to him or her.
• You can claim an unattached structure on your property if your use is consistent with the IRS' other requirements.
• Home offices can support a number of deductions. For example, if the office represents 15 percent of your home, you can write off 15 percent of all of your home's costs, including utilities. You can also depreciate the office portion of your home.

At The Tax Office, we have many years of experience in this area, and will be happy to handle all of your tax preparation needs. If you can legitimately claim the home office deduction, you'll want to document absolutely everything that's legally allowable on the IRS Form 8829. If you have any questions about your home business, contact us here.