Finance Tax Time

When preparing your taxes, the goal is obviously to deduct every last penny you can. Many people are amazingly good at it. Just keep in mind you need receipts for the deductions.

List of Tax Records To Keep

Filling out and filing tax returns is really a quest to conquer the mountain. In this case, the mountain is your gross income. The IRS helpfully lets you know this by making you write it down right away and repeat it in various places on your 1040 form. How nice of them.

To conquer the mountain, you start shaving it down by claiming deductions. The more you can claim, the better off you are. Some people have lots of deductions that help in this regard. Others create lots of interesting deductions to do the same. Whatever you approach, keep in mind you need receipts to support those deductions should the IRS ask to see proof. Here is a list of common tax records you need to keep to support those deductions.

1. Mortgage Interest Payments. One of the great things about owning a home is the mortgage. Oh, wait. The great thing is the mortgage interest deduction, not the mortgage. To prove the amount you have been paying the piper, you should keep the form 1098 you receive from your lender each year. Given the fact the deduction is usually sizeable, make sure to keep it in a safe place.

2. Dependent Support. If you claim someone as a dependent, you may be in for a surprise. You need to be able to prove that you provide more than 50 percent of the support for that person. Happily married parents usually do not have problems, but the IRS likes to zing divorced parents on this issue. Keep records in the forms of receipts, checks and invoices in such a situation.

3. Home Repair Receipts. No, you do not have to show the receipts each year. The issue really comes up when you decide to sell your home. To cut your tax bill, you should claim all repairs and improvements you made since owning the home. Guess what, you need receipts to support those claims. In simple terms, save every receipt related to your home or risk losing the deductions.

4. Medical Expenses. Health care costs are out of control as we all know. If you are claiming deductions related to medical care, keep those receipts and bills.

Obviously, there are other areas where you need to keep receipts, but these are some of the more common places where people fall down on the job. In general, you should keep all the receipts for three years, but I suggest doubling that number. With home repair or improvement expenses, you need to keep them for five years after you get around to selling your home.

Share This

Filed under: Tax Infomation by admin
No Comments »

Between global warming and massive increases in fuel prices, many people are reconsidering their transportation. Honda has two natural gas cars the IRS absolutely loves.

In 2005, the federal government passed a new energy policy act that created tax benefits for the use of alternative fuel vehicles. Most people are generally aware of this given the fact they get a tax credit break when they purchase a hybrid vehicle. What fewer people know, however, is they get massive tax breaks if they purchase a natural gas powered vehicle such as a Honda Civic GX.

Buried within the language of the new energy policy act is the Alterative Motor Vehicle Credit. The AMVC goes well above and beyond the financial benefits granted to hybrid cars. The act defines four distinct areas where the IRS must issue significant tax credits. Those categories include fuel cell vehicles, advanced lean burn technologies, hybrid vehicles and alternative fuel vehicles. While most vehicles fall within the hybrid classification, new models are coming on the market that fall within the remaining three.

Indeed, the IRS has just issued the tax credit amounts that can be claimed by individuals that purchase the Honda natural gas models. Specifically, the tax credit amount is $4,000 if you purchase either the 2006 or 2007 Honda Civic GX. The car must be purchased new and directly form a dealer. Please note, these cars run only on natural gas, which is why they get such a big tax credit.

This $4,000 tax credit is a major financial incentive for most taxpayers. Unlike a tax deduction, a tax credit is applied directly to the amount of money you owe the IRS. If you prepare your tax returns and determine you owe $7,000 to the IRS, the tax credit would reduce this amount to $3,000. In short, we are talking about major savings.

There is little dispute that we are facing significant issues related to energy. From global warming to our reliance on foreign sources for fuel, things are pretty bleak. The transition to alternative fuel sources makes sense, and now the tax credit for natural gas powered vehicles makes financial sense as well.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

Share This

Filed under: Tax Infomation by admin
No Comments »

Is your business missing out on valuable tax deductions you can take for the use of your personal vehicle for business purposes?If you haven’t done so already, you should definitely beat a path to the door of your local office supply store and pick up a notebook for logging the mileage you drive to conduct businessand be sure to log the miles you drove to buy it!

Not taking the trouble to do this is like letting your pricey gasoline flow onto the pavement instead of into your tank!

Even if you work at home most of the time, miles you’ve driven to purchase office supplies, buy stamps or mail packages, and other errands for your business can translate into big tax deductions. With fuel costs soaring, you are literally throwing money down the drain if you are not keeping track of this mileage and taking the deductions for it to which you’re entitled as a business owner. And the first entry you need to make is the beginning mileage on the odometer as of January. You’ll also want to make sure that you keep track of all your automobile expenses associated with that personal vehicle that you’re using for business. (See why below…)

The dramatic surge in fuel costs has not been lost on the IRS. Of course, gasoline prices began to edge up shortly after the beginning of the war in Iraq; but the devastation wrought by Hurricane Katrina prompted the IRS to offer a valuable money-saving solution for business owners. (If you live outside the U.S.A. you should check your tax authority’s website for similar provisions.)

Last year,for 2005, the IRS increased the standard mileage rate for the use of a vehicle (car, van, or truck) by 3 cents a mile, to 40.5 cents a mile for all business miles driven. However, in the wake of Katrina, that rate was increased further to 48.5 cents a mile for the business miles driven in the months of September, October, November, and December, 2005.

This increased mileage rate ended with the end of 2005. The new mileage rate for 2006, effective January 1, is now 44.5 cents per business mile driven. You can maximize this deduction if you’re careful to consolidate business and personal errands. For example, I wait until I need to go to the post office to ship a package for my business to stop to at the drug store and supermarket right next door to pick up groceries. What would have been “dead” mileage becomes a deductible business trip, as long as you’ve logged your business purpose in your mileage logbook.

In addition, for both 2005 and 2006, the IRS also encouraged
Katrina-related charitable relief activities by granting
higher rates for miles deductible and miles reimbursable driven for such activities.

Of course, the use of these mileage allowances can be rather complicated. For example, you cannot take additional
deductions for business use of an automobile to which you
have already applied the Modified Accelerated Cost Recovery
System (MACRS), after claiming a Section 179 deduction for
that vehicle that your business purchased directly.

And if you’re using a personal vehicle for your business,
don’t forget to calculate the percentage of total miles for
the year that you travel for business purposes. At the end of 2006, you’ll note the year-end odometer reading in your mileage logbook and subtract from it the odometer reading that you recorded this month. Then you’ll add up all miles driven for your business that you have recorded and divide it by that total mileage to calculate the percentage of total miles you used for your business. If it turns out that 30% of your total mileage on that personal vehicle was for business purposes, you can deduct 30% of *all* your expenses for maintaining that vehicle: not only fuel, but all trips to the garage for routine maintenance or special repairs as part of your business expenses for the year.

The devil is in the details, as always, of course. You will want to consult your tax accountant on how best to apply the rules to your situation. If you prepare your tax returns yourself, you can get the details directly from the IRS website:

http://www.irs.gov/pub/irs-drop/rp-04-64.pdf. Examine the fine print closely: You’ll find that there are limits on what percentage of business use can be claimed for a personal vehicle, no matter what your actual numbers might be; so if your actual business mileage is greater than 75 per cent of your total mileage, you might be better off purchasing a separate vehicle dedicated to business use. If you’ve taken the care to structure your business correctly–using a corporation, limited liability company, or other stand alone entity–you and your business will benefit from even greater deductions.

(C) Copyright 2006 Azur Pacific Associates.
All formats and media, known and unknown.
All Rights Reserved.

Germaine A. Hoston, Ph.D. is a political economist, consultant and President of Azur Pacific Associates. She specializes in helping small business owners (those with fewer than 500 employees) maximize their bottom line by using business entities as alternatives to the popular but risky single proprietor/general partnership to minimize taxes and protect
personal and business assets. She is Editor of Azur
Pacific Associates’ free monthly WealthStrategies 202.com eNewsletter http://www.wealthstrategies202.comand an authorized reseller of the Secret Millionaire Asset Protection System http://www.wealthstrategies202.com/secretmillionairenopopup.html

Share This

Filed under: Tax Infomation by admin
No Comments »