1. If someone just started a business this year and they do not expect to earn any income from the business - what can they include as their expenses?
Even if you have not profited from your new business, you are still entitled to report any expenses necessary for your new business. Your ability to deduct these expenses against other forms of income you may depend on your participation level in the business. If you've spent more than you've earned in your first year in business, this loss may be available to be deducted against income from your past or in the future - so don't ignore it! Good planning can help you evaluate the best strategy for putting these losses to work for you and can even result in cash back from prior tax years.
2. Can you take both sales tax deduction and state income tax deduction?
You must choose between the two. It makes sense to see which deduction results in a higher deduction.
3. How can I claim teleworking deductions?
You have to use your office regularly and exclusively for business. If you claim home office deductions for space you use as an employee, you have to show that your employer requires you to maintain the office for the employer’s convenience.
4. If you have a partner, do both partners have to have the same business deductions?
If you operate your business as a partnership (even without formalized partnership documents) each partner is generally required to report his or her proportionate share of earnings and deductions. In some cases, it may make sense in your ProActive Tax Strategy to make what are called “special allocations” which are permitted in partnerships. These allocations allow you to share disproportionately in earnings and deductions of the business and can be a powerful part of your tax plan. Your tax planner can provide you an estimated tax savings on implementing this for you.
5. If someone has a hobby business in retirement should it still be filed under a business or personal income?
If you're new in the business, your income is low, or if you operate part-time, you need to know how to protect your tax breaks from the hobby loss rule. You might still be able to deduct hobby losses if your hobby is sufficiently related to your business to treat both as a single activity. You need to show a genuine link, though. The key is to prove that you started the business with the intent to make a profit. You don't need to expect it, but you do need to intend it. If you profit in 3 of the previous 5 years, the IRS presumes you have that necessary intent. But you don't have to show a profit at all if you don't make one! You can lose money year after year, and still prove your business intent by operating in a businesslike manner. In one recent case, a cattle farmer lost money for 24 years and still proved a profit motive!
6. What qualifies as an educational expense?
Saving for college can be harder than saving for retirement! The clock starts ticking the day your child is born, and the closer college draws, the less risk you can take. Credits are available for parents (if they claim a student as a dependent) or students (if they can't be claimed as someone else's dependent). The credits are available for qualified tuition and related expenses incurred for the taxpayer, the taxpayer's spouse, or the taxpayer's dependent who is an eligible student at a qualified educational institution. In general, qualified expenses do not include room and board, books (required for enrollment), student health fees, or transportation.
7. How do you maximize tax savings if you are subject to AMT?
Alternative minimum tax (AMT) is a parallel tax designed to prevent "the rich" from using regular deductions to avoid tax entirely. The best strategy in developing a super tax plan is to begin with a tax plan specific to AMT. Once you've done this, you can begin creating your tax plan for ordinary income tax.
8. Are there deductions for travel that everyone should be thinking about?
Travel costs are deductible for trips you take on behalf of your trade or business. You are considered to be traveling when you're away overnight or long enough to need to sleep. Want to write off weekends? You can treat them as business days if they fall between business appointments or you stay over (before or after your business) to qualify for airline "Saturday stay" discounts.
9. Are there any benefits to registering one’s business in a particular state?
It’s fairly common to see businesses domiciled in Nevada and Delaware for legal purposes. Generally these states provide additional liability protection due to stricter charging order laws. Most business owners select their business entity and place of domicile based on their attorney’s advice for the best legal protection. However, each different type of entity also receives different tax treatment. Depending on an individual’s unique circumstances, it’s best to have your attorney and your tax planner working together to make sure you have the best liability protection with the most tax benefits.
10. How one can use renovations towards a Tax Credit?
It can vary from renovating your kitchen, adding a roof, and updating windows, all of those items, specifically the kitchen, can be deducted if you are eligible for a home office deduction. You are able to deduct qualifying home improvements equal to the business use percentage of the home. These improvements are depreciated – but can be a great way to turn after tax dollars into pretax dollars – a very powerful tax planning strategy!
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