Tips for Using Your IRA as a Last Minute Tax Deduction

If you have an IRA, you have a way to make a last minute tax deduction. Today, we are sharing a few tips that will allow you to use your IRA as a last minute tax deduction.

Max out Your Contributions

With a traditional IRA, you can make as many tax-deductible contributions as you like within your limits. If you want to save money on taxes in the end, you should max out your ROTH IRA because it will be taxed when contributing yet when you withdraw you do not have any taxes.

Contribute for the Prior Year in the New Year

After you receive your taxes owed amount you may find it to be too expensive. Keep in mind that you can contribute to your IRA up until tax day for the prior year. We think that it is best to contribute to your future than to give your hard-earned money to Uncle Sam.

Save For Retirement Early

Once you have gotten everything out of the way for the current tax year, why not go ahead and start preparing for the New Year? You can set up automated contributions for retirement during the year.

1. Max out your 401 (k) account through that has employer matching
2. Try to reach your maximum limit on your ROTH IRA
3. Put more money into a 401 (k)

Closing Thoughts

When you automate your contribution payments in the beginning of the year you can make sure that you have tax breaks available at the end of the tax year. Huddleston Tax CPAs can help you use your IRA as a last minute tax deduction. Call us at (425) 483-6600 or visit our Bellevue CPA site.

4 Tax Deductions That Can Save You Big Bucks

Everyone knows that there are tax deductions that can help him or her save money yet everyone does not utilize them. Today, we are discussing four tax deductions that can save you big bucks this tax season.

State and Local Sales Tax
If you live in a state with no income tax, you should take advantage of deducting the state and local taxes instead. You just have to remember to keep your receipts for in the event that you are audited.

Bonus Depreciation
Small and medium sized businesses are able to write off 50% of the costs of assets that they purchased for business during 2014. This means that they can deduct up to $500,000 of qualifying assets instead of the projected $25,000. This can help business owners save a large amount of money. Therefore, you want to make sure you check to see if you are eligible for these deductions.

Visit our Shoreline CPA blog to read “4 Things a Sneaky Tax Preparer Will Not Tell You”

Health Insurance Premiums
If you are self-employed, you are able to deduct your health insurance premiums. For some the Affordable Care Act will be expensive but self-employed individuals will get a tax break since they have to pay for their health insurance premiums themselves.

Mortgage Points
Many taxpayers are aware of the mortgage interest deduction but they are unaware that they can deduct the costs of the points. The costs of the points still have to be spread over the mortgage life but this is a deduction that can help you save.

Conclusion
If you need help with your deductions or need help in other tax areas, look into hiring a professional tax firm to file for you. We suggest reaching out to our tax firm Huddleston Tax CPAs. We are a Seattle CPA firm that specializes in assisting small businesses and individuals. You can reach us at (425) 483-6600.

Three Tax Deductions You Do Not Want to Overlook

Most people just want to get their taxes filed so they can get it done and over with. However, you never want to rush through your tax return or you could be giving away your hard-earned money. Today, we are discussing some tax deductions that you do not want to overlook to try to help you keep the maximum amount of your hard-earned money in your pocket.

Out of Pocket Charitable Deductions

Little donations add up. Make sure you keep your receipts each time you donate, so if you go over $250 in donations you can provide documented proof to the IRS. Additionally, if you volunteer for a charity and spent your money for them that is deductible too.

Student Loan Interest Paid by Parents

If you are a college student who cannot be claimed as a dependent by your parents, you can deduct the interest that they paid on your student loans. You can do this without messing them up because even though they are the ones who pay for your student loans, the IRS looks at it as though they gave the money directly to the child.

Job Hunting Costs

Most of the money that you spend searching for a new job can be deducted when tax time comes around. However, to be eligible for the deduction you have to make sure that you were searching for a position in the same line of work that you did previously.

Bottom Line

When tax season rolls around, slow down and take your time when filing your tax return to ensure that you do not overlook any tax credits.

Thanks for reading our Seattle CPA blog post! We update weekly!

If you’re looking for a CPA this upcoming tax season, call us at (425) 483-6600!

 

Deductions (Leave it up to the professionals)

When it comes to paying taxes, nothing cuts through the tension and discontent like a good deduction. That’s why we’ve taken a little time this week to put together a few resources to help you educate yourself on a few viable tax deductions for small business owners and individuals.

Now, let’s get to the resources that help: Over at kiplinger.com, they’ve put together a great list of deductions to claim at all stages of your life. This is really a good way to get a broad overview of some pretty basic deductions as well as a few more complicated ones.

In fact, we found this article such a good overview, we put together a slide show highlighting one of its best bits: the 5 best deductions for small business owners. Take a look at our page over at slideshare to find the slideshow and check it out.

Now, without further ado, here’s a large infographic about deductions.

Who knew?

Of course, before you go off claiming any of these “strange and legitimate” deductions for yourself, or before you decide to do any accounting stuff yourself, be sure to consult with an actual accountant. If you’re not sure about that, give this post a quick read.

In any event, thanks for reading, and give us a call sometime at (425) 483-6600!

Oh, and in case you were wondering, here’s what’s been going on with the IRS.

ABBA and other crazy tax deductions

This post is for all of you ABBA aficionados cum tax payers. ABBA is releasing a new book soon entitled Abba: The Official Photo Book. In it member Björn Ulvaeus (photo) admits the colorful outfits ABBA were known for in the ’70’s were donned for tax deductions as much as they were about cultivating a glam image.

Sound a touch scandalous? Well, only if you wear a suit to the office.

abba gif

According to this article on the ABBA tax write off, this kind of deduction is totally viable for the likes of ABBA and/or a fireman while anyone wearing your average workaday business suit to work is more or less being too “aggressive” when they make this kind of deduction. In both the Swedish and American tax codes the idea is that work clothes are permissible for deduction only if they cannot be worn on the streets or in a capacity other than for work.

So if you wear something like these ensembles to work feel free to deduct away. Otherwise, it’s probably best to just grin and bear your non-tax deductible normalcy, and leave your deductions up to a professional accounting firm like Huddleston Tax CPAs. Give us a call at 425-483-6600!

 

Home Office Deductions for Landlords

A large number of business owners are leery of home office deductions, concerned that these tax write-offs are more likely to encourage an IRS audit. The IRS claims there is no meat to this. In any case, follow the rules and you should have no concerns.

Active owners of a rental property may qualify for the home office deduction. The key to this deduction is the word “active”. The landlord must do more than simply receive and deposit rent checks every month. You will need to regularly spend substantial time maintaining properties and preparing them for rent as well as seeking new tenants.

So if you qualify as an active rental property owner, the next requirement is that the home office space is used exclusively to manage your rental business.

On top of these requirements, you must meet at least one of the following expectations:

1. Your home office is used as your principle place of business.

2. You have no other fixed location where you perform administrative and management activities.

3. You interact with tenants in this office space.

4. You use another structure on your property to conduct business.

After you have applied these threshold tests and determined that the work area in your home does in fact qualify for the home office deduction, you have to look into what kind of expenses are tax deductible. There are direct and indirect types of home office deductions. Direct expenses exclusively benefit the home office area of the home, expenses such as painting or cleaning. Indirect expenses benefit the entire home and must be apportioned out between the office area and the rest of the house. Mortgage interest, insurance, property taxes and utilities are typical examples of indirect expenses. Square footage is the common system of figuring out the proportion of the home office in relation to the entire house to come up with a percentage. A 2,000 square foot home with a 200 square foot home office area would mean 10% of the indirect expenses could be deducted as part of the home office deduction. You can also depreciate the house structure (not the value of the land) in the same percentage over 40 years. However, this may complicate matters if you sell the house.

And you will want to ensure that you are keeping fastidious records in case there is an audit. You will need to be able to prove that you were entitled to any claimed tax deductions. A diagram and/or a photo will support your claim of square-footage ratios. It is wise to have your home office address listed on business cards, letter heads, or other forms of professional communication. And while using your home office to meet clients, it is wise to keep a log to keep track of meetings. You should keep relevant expense statements, such as utility bills, mortgage interest statements, insurance premium statements, property tax statements, and other appropriate expense statements.

This subject can get quite complex and the above is only intended to give you a basic understanding of the circumstances that would allow you to take advantage of the home office deduction.

Seattle Accountant has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

Small Business Webcast lists some of the expert CPAs & Accountants with various specialties including tax preparation, Quickbooks training and business valuation.

Deductions within Startup Expenses

This write-up concentrates on deductible startup expenses for rental properties. You could be allowed to deduct a number of expenses incurred as you prepare the property for rental, but before renting it.

NOTE: These startup expenses outlined within this write-up will not be the same types of expenses allowed as a tax write-off within section 195 of the Internal Revenue Code. Under the section 195, certain startup expenses (in an active trade or business) are deductible up to $5,000 with this balance amortizable over fifteen years. Though, under section 195 code, rental activity isn’t included considering that rental property is perceived as a passive activity instead of an active business or an active trade. Find more information on active versus passive rules in the article titled Tax Deductible Rental Losses.

NOTE: “Rental activity” begins right when you place a property on the market, not when you have actually rented it.

Obtaining a Mortgage Expenses Incurred

Abstract fees, recording fees, and mortgage fees (amongst others) are capitalized and thus become part of your basis in the property. Rather than expensing these fees all at once, you need to depreciate the expenses. The article Depreciation Expenses for Rental Properties has further information on depreciation.

Points

“Points” are charges paid by a borrower to take out a loan or a mortgage. These charges may also be called loan origination fees, maximum loan charges, or premium charges. Points are essentially prepaid interest. Thus, they are deductible as interest, but you cannot deduct the full amount at once. Rather, you must amortize the points over the life of the loan. Figuring out how many points to amortize per year is a complicated process beyond the scope of this article. Visit a tax professional.

Improvements vs. Repairs

You must capitalize and depreciate improvements to the property previous to putting the property on the market. Improvements prolong the use of the property or materially increase the property’s market value. Repair expenses, on the other hand, you may freely deduct. A repair maintains your property in good working condition without adding to its value or prolonging its use. See the series of articles about deductions and depreciation, included in this Guide, for more information.

Seattle Accountant has written extensively on several tax related subjects. He is a graduate of the University of Washington School of Law.

Travel Expense Deductions

Joe Taxpayer operates a retail SCUBA diving equipment business as a sole proprietor in Seattle. Joe knows he needs to be consistent in recording his business travel in order to deduct the mileage. He keeps a clipboard, chart and pen in his vehicle, and records his odometer readings every time he gets out of the vehicle. When a page is full, he puts it in his tax file for use in calculating the deduction. He will use the standard deduction for mileage rather than opting for actual cost. He chooses this method because he doesn’t have a separate personal vehicle, and has found this the better way to go for his situation.

Joe goes to the local office supply store occasionally to stock up on supplies. He stops for lunch now and then on the way back to the store, but he knows he can’t claim the lunch as an expense. He is eating by himself, and has no business-related purpose.

Joe picks up the tab when he meets with his banker for lunch, and puts the receipt in a special file when he returns to the store. Meals are only 50% deductible on his taxes, even an “entertainment” business lunch with a customer or business partner like the banker, so to keep his records straight, he has a separate file.

Joe wants to travel 1,200 miles to attend a conference in Las Vegas. The four day conference is in mid-November, and is sponsored by the Diving Equipment and Marketing Association. Joe is going to fly to save the two day drive each way. He expects he will make new contacts, and will learn about the latest trends in marketing for his business. The conference doesn’t include meals in the registration prices. Joe would like his wife to go also, and they want to see a show, maybe the Tournament of Kings. They are also considering renting a car to visit the new bridge over the Hoover Dam.

Because Joe is in the business of selling SCUBA equipment and he is going to a conference that is “ordinary and necessary” for his line of work, he can deduct the costs of the conference. His travel by air, the cost of the hotel, and the mileage on the rented vehicle going from the hotel to the conference are all deductible. He can still only deduct 50% of the cost of his meals even though he is away overnight. None of the costs related to his wife’s travel or meals can be deducted because she isn’t Joe’s employee. The visit to Hoover Dam can’t be deducted, nor the Tournament of Kings show. Joe needs to keep receipts for all of his expenses, and he should note on the receipt when and why the costs were incurred.

It turns out Joe’s wife can’t go after all, but he meets a potential supplier at the conference, and they decide to see the Tournament of Kings show after the seminars end for the day. The entertainment takes place immediately following a substantial business discussion, so Joe generously offers to pay for the outing, and he is able to deduct 50% of the cost of the tickets.

After he returns from the conference, Joe decides to put into practice some of the marketing information he learned at the conference. He takes a trip to Portland to promote his business to the 7:00 PM Oregon SCUBA Club meeting. This is about 200 miles from his home and store, so he drives his car. After the meeting he stays in a hotel overnight. The cost of the hotel is fully deductible, and his meals are deductible at 50%. He uses the standard mileage rate for travel, so once again he tracks his odometer reading. He also saves his receipts for parking and tolls, and deducts those as well.

Joe Taxpayer keeps his travel records orderly and documented because he has learned a little bit of effort now will mean tax savings when his tax return is filed.

Related Articles:

http://www.huddlestontaxcpas.com/travel-deductions-for-the-self-employed/

Can I deduct the time I donated?

Come tax time many self-employed individuals who donate their business time and services wonder if that time is deductable as a charitable donation.  Unfortunately, no, a donation of your time is not a tax deduction.  Self-employed individuals such as lawyers and therapists often donation their services to charitable organizations and think that each hour they work for the organization should be deductable as a charitable contribution based on their normal hourly billing rate but this is not allowed under IRS regulations. 

For a charitable contribution to be deductable on your tax return it must be a contribution of money or goods to a qualified charitable organization.  If you donate goods to a qualified organization then you can generally deduct the fair market value of those goods at the time of donation.  Charitable donations are usually limited to 50% of your adjusted gross income and are reported on Schedule A of your personal tax return.

Contributions that do not qualify for tax purposes are contributions from which you benefit, contributions to specific individuals, contributions to non-qualified organizations, the value of your time or services, your personal expenses, appraisal fees, certain contributions to donor advised funds, and certain contributions of partial interests in property.

If you have questions on whether or not a specific contribution you have made or are thinking of making qualifies for tax purposes it is always a good idea to consult your tax advisor.

 

How to Correctly Deduct Car and Truck Expense

When you use your car or truck for business, generally the expenses associated with that are deductible as business expenses.  You can deduct the auto expenses for business when you are traveling from one work location to another, visiting customers, attending business meetings away from your regular workplace, or getting from home to a temporary workplace.  You should remember that auto expenses related to travel between your home and your regular place of work are considered commuting expenses and are not deductible.

There are two options for deducting auto expense on your tax return.  You can choose to use either the standard mileage rate or actual expenses. 

The standard mileage rate can be used to figure the auto deduction if the car or truck is owned or leased.  When your auto is leased and you use the standard mileage rate, it must be used for the entire lease period.  The standard mileage rate is adjusted annually by the Internal Revenue Service.  For 2009 the rate is 55 cents per mile.  There are a few cases when you are not allowed to use the standard mileage rate and that is when you use the car for hire, use more than five cars at a time, claim depreciation on the auto, or are a rural mail carrier.

The actual expense method includes deducting expenses for depreciation, gas, insurance, repairs, oil changes, registration, etc.   In the case of the actual expense method, if your business use is less than 100% you must allocate the expenses between business and personal use. 

No matter which method you choose it is important to keep good records of your expenses and your miles driven both personal and business.  It is important to keep a mileage log and the receipts for gas, repairs, etc. If you have questions on whether or not an auto expenses is deductible or about which method is better for your situation then please contact your tax advisor.