Worst Part of Owning a Business

“40% of small business owners say bookkeeping and taxes are the single worst part of owning a business.”  Source: 2014 survey from SCORE, a small business mentoring organization

Posted in Quotes

Can I claim the home office deduction if I don’t own my home and pay rent?

You can claim the home office deduction whether you rent or own your home.

There are two options.  You can use a simplified option which is the square footage of the office times $5.  If you use the regular method, part of the rent you pay may quality.

If you are self-employed, you can claim the deduction on Schedule C as part of the P&L for your business.

If you are an employee, you can claim the deduction on Schedule A if you itemize your deductions.

Posted in Deductions, IRS

Home Office Deductions

The home office deduction is a great benefit for home-based businesses.  In 2013, more than 3.4 million taxpayers claimed deductions for the business use of a home.

In order to claim the deduction, the IRS requires that the home office be used regularly and exclusively for business, and the limit is tied to the income derived from the particular business. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.

Self-employed individuals claim the home office deduction on Schedule C, farmers claim it on Schedule F, and eligible employees claim it on Schedule A.

There are two options: the simplified method or the regular method.

  • Regular Method
    • The home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
    • Home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.
  • Simplified Method
    • It is designed to reduce the paperwork and recordkeeping burden for small businesses.
    • The maximum is $1,500 per year, based on $5 a square foot for up to 300 square feet (make sure you only count the square footage that is used for business).
    • Using this method you cannot depreciate the portion of your home used in a trade or business, but you can still claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. (These deductions need not be allocated between personal and business use, as is required under the regular method.)

You only need to complete a short worksheet in the tax instructions and enter the results on the tax return.

Posted in Deductions, IRS

Records Retention for Businesses

We are often asked, “How long do I have to keep this stuff?”

Whether personal or business, the minimum is 3 years to retain records since the IRS generally has 3 years to audit you from the date you file your taxes (with the exceptions of a false return or willful attempt to avoid tax).  However, the general rule is 7 years for records retention.  We generally use 10 years.

Scanning and creating electronic versions of your backup information helps to cut down on the paper pile.

Contact us if you’d like a more detailed guide for keeping all that “stuff”.

Posted in Tips

Profit Motive

The law says that a business loss can produce a tax write-off as long as the owner is honestly trying to make a profit.  The Tax Code provides a test for profit motive:  If a venture doesn’t make money in at least three of five years, it is presumed to be a hobby, and not operated for profit.

Posted in Profit

Corresponding with the IRS

Whenever writing the IRS, always make several copies of whatever you send.  If the IRS misplaces your first correspondence, you can send it again – and again, if necessary.

Posted in IRS

IRS Documentation

Avoid giving original documents to the IRS.

Posted in IRS

Youth Summer Employment

Students will soon be looking for summer jobs, and Colorado has some work restrictions for minors working in the state of Colorado.

Minors are not allowed to work more than 40 hours in a workweek or in excess of eight hours in any 24-hour period.

Minors under the age of 16

The minimum age for employment in Colorado is 14.

Minors under the age of 16 may do office and clerical work, retail food service, and hold jobs in retail stores, gasoline service, parks and recreation, and other occupations.

They may not be on the job more than three hours on a school day (including Friday) nor beyond 18 hours in a school week.

They also cannot work earlier than 7:00am or past 7:00pm during the school year or after 9:00pm in the summer (June 1 to Labor Day).

Minors age 16 and 17

There are no limitations on the times of day when minors age 16 and 17 may work.

At 16, minors can perform the same jobs as 14-year-olds plus operate a motor vehicle if they have the proper license to do so.

Posted in Colorado

Accounting Humor

The CEO of a company calls in an engineer and asks him what is 2 plus 2.  He says, “4.000000.”  He calls in the head of manufacturing and asks him what is 2 plus 2.  He says,  “To be safe, 4.5.”  He calls in the sales manager and asks him what is 2 plus 2.  He says, “To make it effective, 3.98.”  He asks the director of finance what is 2 plus 2. He locks the doors, pulls the blinds, and makes sure no one is around.  Then he whispers, “Whatever you want it to be.”

Posted in Humor

Tax Code

“The (tax) code has grown more complex by the year, as evidenced by the fact that Congress has made more than 5,900 changes to the code – an average of more than one a day – just since 2001.”

–National Taxpayer Advocate Delivers Annual Report

Posted in IRS