Taming Taxes

Small-business owners and independent contractors may be more likely than other taxpayers to benefit from the home-office tax deduction, which has an average value of more than $2,600.¹ But some taxpayers may be hesitant to claim this potential tax benefit on their personal tax returns, fearing that it could trigger an IRS audit.

Their worries are not entirely unfounded. Taxpayers who claim home offices often don’t meet the requirements, or they calculate the deductible amount incorrectly. This checkered past may explain why the government tends to take a closer look at returns that include this deduction.

Even so, business owners who operate out of a home office and are legitimately entitled to claim the deduction should consider taking advantage of this valuable tax break.

Calculating the Benefit

Eligible taxpayers can write off a percentage of home expenses such as depreciation, rent, property taxes, insurance, utilities, maintenance, and repairs. The percentage is based on the square footage of the office space relative to the total size of the home.

Passing the Test

To qualify for a write-off, a home office must be used in a trade or business activity — not to manage personal investments or pursue a hobby. It must also be used regularly and exclusively for business. If part of your home is used to provide day care or to store products, you may not have to meet the exclusivity test. In addition, your office must meet at least one of the following three criteria:

• It is the place where you normally meet with patients, clients, or customers.
• It is your principal place of business, meaning there is no other fixed location where you work on a regular basis.
• It is a separate structure that is used exclusively for trade or business. If the office space is not attached to the dwelling, it does not have to be the principal place of business.

If you take the deduction, make sure to keep good records, including pictures that show how your home office is used. You may want to ask a tax professional to help determine your eligibility and evaluate whether the potential tax savings may be worth the added IRS scrutiny.

1) businessweek.com, February 21, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek Naperville Tax Services advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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What Tax Deductions Are Still Available to Me?

Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available to help lower their tax liability. In fact, a former head of the IRS once said that millions of taxpayers overpay their taxes every year because they overlook one of the many key tax deductions that are available to them.1

One of the most overlooked deductions is state and local sales taxes.2

Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services, and contributions to a traditional IRA.

Of course, some tax deductions disappear as adjusted gross income increases. And some deductions are subject to sunset provisions, which your Naperville tax professional can help you navigate.

Another key deduction is unreimbursed medical and dental expenses.

Remember that you may only deduct medical and dental expenses to the extent that they exceed 7.5% of your adjusted gross income (AGI) and were not reimbursed by your insurance company or employer.*

In addition to medical and dental expenses, certain miscellaneous expenses — primarily unreimbursed employee business expenses — can be written off if they exceed 2% of AGI. Some of the expenses that qualify for this deduction are union dues, small tools, uniforms, employment agency fees, home-office expenses, tax preparation fees, safe-deposit box fees, and investment expenses. Your Naperville tax services advisor will be able to tell you exactly what’s deductible for you.

The end of the year is the time to take one last good look to determine whether you qualify for a tax credit or deduction or whether you’re close to the cutoff point.

If you’re not close, you may opt to postpone incurring some medical or other expenses until the following year, when you may be able to deduct them.

On the other hand, if you’re only a little short of the threshold amount, you may want to incur additional expenses in the current tax year.

With a little preparation and some help from a qualified tax professional, you may be able to lower your income taxes this year. You just have to plan ahead.

* The Patient Protection and Affordable Care Act of 2010 raises the floor on itemized medical expenses to 10% of AGI beginning in 2013.

1–2) Kiplinger.com, December 2010

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

Related articles

• What Are Tax Deductions? (turbotax.intuit.com)
• 10 Commonly Overlooked Tax Deductions (thestreet.com)
• 5 Ways to Save on Your Taxes in 2012 (money.usnews.com)

Naperville Tax Services: More Than Meets the Eye

When it comes to Naperville Tax Services, some folks only think about tax return preparations. With so much stress and anxiety surrounding tax season, there are people who would just as soon forget about their taxes for the rest of the year. But it's important for everyone, regardless of their income, to be aware of the wide variety of tax services that can help to ease the pain before tax preparation time even arrives.

Here are some of the Naperville Tax Services that some folks we talk to have never considered, which can help to make tax season a bit less stressful:

-    Bookkeeping. For businesses, keeping the books current and staying on top of income and expenditures is vital. Unfortunately, some companies simply can't have a full time accountant on the payroll. For companies, like these, professional tax help is still available, as we can still come advise and help with any bookkeeping tasks that need to be done to get finances organized and ready for tax season.

-    Business planning. If you plan on growing your business, it takes more than just a great idea. There are financial concerns that simply have to be addressed as part of any reasonable business plan. We always advise anyone who is planning on starting or growing a business to get financial guidance from a trusted Naperville accounting firm. While business planning may not be a direct tax concern, preparing ahead of time for tax concerns can make the difference between success and failure.

We always advise people to remember that taxes aren't something that only needs to be considered in April. To avoid penalties, audits and anything less than the best tax preparation, it's essential to know which types of financial services your business needs, and to get that help from the Naperville tax experts at Lewis CPA.

Professional Tax Services Make a Difference

How do you feel when it gets close to tax day? Do you, like many others, feel anxious or even nervous about filing your own tax return? If you've had enough of dealing with that yearly anxiety, it may be time to give some serious consideration to using the Naperville Tax Services provided by Susan S. Lewis Ltd. We are recognized in the Naperville area as the most reliable, and knowledgeable tax professionals. And since we do personal tax returns, small business tax returns and corporate tax returns, you can be sure that we know the ever-changing tax laws better than any accountant office in Naperville.

Business Owners Rejoice

Things can get very complex when it comes to filing business taxes. Of course, if you've been running a business of your own for any length of time, this isn't news to you. And since business tax laws change a lot every year, it can be tough for even the most financially minded business owners to stay on top of all the complicated changes. Again, this is where the Naperville Tax Services you get from our office come into play. We are known for helping local businesses take care of their taxes and keeping business on track financially. You can even hire our accounting company to take care of your business bookkeeping to help keep the company's finances organized and ready for audits.

Whether you need a personal filing or a business tax filing, you now know the area's most trusted source for reliable, accurate and trustworthy Naperville Tax Services – Susan S. Lewis Ltd. So get prepared for tax time early this year, and set up a time to discuss how we can help you with all of your tax needs.