Home Business Tax Deductions

Transcription

1 Home Business Tax Deductions 15 th Edition Stephen Fishman, J.D.

2 Chapter 1 Some Tax Basics... 1 Learning Objectives... 1 Introduction... 1 How Tax Deductions Work... 1 Types of Tax Deductions... 1 You Pay Taxes Only on Your Business Profits... 2 Claiming Your Deductions... 2 Make Sure You Are in Business... 2 How Businesses Are Taxed... 2 Basic Business Forms... 3 Sole Proprietorship The Most Popular Home Business Entity... 3 Tax Treatment... 4 What Businesses Can Deduct... 5 Start-Up Expenses... 5 Operating Expenses... 5 Capital Expenses... 5 Pass-Through Tax Deduction... 6 Inventory... 6 Adding It All Up: The Value of Tax Deductions... 6 Federal and State Income Taxes... 6 Self-Employment Taxes... 7 Total Tax Savings... 8 Review Questions... 9 Review Answers Chapter 2 Is Your Home Business Really a Business? Learning Objectives Introduction Proving That You Are in Business Profit Test Behavior Test Tax Consequences of Engaging in a Hobby Investing and Other Income-Producing Activities Tax Consequences of Income-Producing Activities Medicare Tax on Investment Income Types of Income-Producing Activities Review Questions Review Answers Chapter 3 Getting Your Business Up and Running Learning Objectives Introduction What Are Start-Up Expenses? Common Start-Up Expenses Special Rules for Some Expenses Buying an Existing Business If Your Business Doesn t Last 15 Years Expenses for Businesses That Never Begin General Start-Up Costs Costs to Start or Acquire a Specific Business Avoiding the Start-Up Tax Rule s Bite Review Questions Review Answers... 28

3 Chapter 4 Home Business Operating Expenses Learning Objectives Introduction Requirements for Deducting Operating Expenses Ordinary and Necessary Current Expense Business Related Reasonable in Amount Operating Expenses That Are Not Deductible How to Report Operating Expense Deductions Review Questions Review Answers Chapter 5 Deducting Long-Term Assets Learning Objectives Introduction Long-Term Assets Deducting Inexpensive Property: The De Minimis Safe Harbor and Materials and Supplies Deduction 38 The De Minimis Safe Harbor Maximum De Minimis Amount The Materials and Supplies Deduction Interaction With De Minimis Safe Harbor General Rules for Deducting Long-Term Personal Property Disposing of Long-Term Assets Bonus Depreciation Property That Qualifies for Bonus Depreciation Calculating the Bonus Amount Opting Out of the Bonus Bonus Depreciation Percentages Section 179 Deductions Deducting Repairs and Improvements Regular Depreciation When to Use Regular Depreciation Deducting Business Vehicles Is Your Vehicle a Passenger Automobile? Annual Depreciation Limits for Passenger Automobiles Heavy Deductions for Heavy Metal: Bonus Depreciation for SUVs and Other Weighty Vehicles Tax Reporting and Record Keeping Leasing Long-Term Assets Review Questions Review Answers Chapter 6 The Home Office Deduction Learning Objectives Introduction Qualifying for the Home Office Deduction Threshold Requirements: Regular and Exclusive Business Use Additional Requirements Corporation Employees Calculating the Home Office Deduction How Much of Your Home Is Used for Business? What Expenses Can You Deduct? Simplified Home Office Deduction Method How the Simple Method Works IRS Reporting Requirements Audit-Proofing Your Home Office Deduction Prove That You Are Following the Rules ii

4 Keep Good Expense Records Review Questions Review Answers Chapter 7 The Pass-Through Deduction Learning Objectives Introduction You Must Have a Pass-Through Business You Must Have Qualified Business Income You Must Have Taxable Income Deduction for Taxable Income Below $157,500 ($315,000 for Marrieds) Deduction for Income Above $157,500 ($315,000 for Marrieds) Are You a Specified Service Business? Deduction for Non-Service Businesses (Income Over $157,500/$315,000) Deduction for Specified Service Business Owners (Income Over $157,500/$315,000) Taking the Pass-Through Deduction Strategies to Maximize the Pass-Through Deduction Keep Service Business Income Below $207,500/$415,000 Threshold Form an S Corporation File a Separate Return Hire Employees Review Questions Review Answers Chapter 8 Getting Around Town: Car and Local Travel Expenses Learning Objectives Introduction Deductible Local Transportation Expenses Travel Must Be for Business Trips from Your Home Office If You Have No Regular Workplace The Standard Mileage Rate How the Standard Mileage Rate Works Requirements to Use the Standard Mileage Rate The Actual Expense Method How the Actual Expense Method Works Record-Keeping Requirements Vehicle Depreciation Deductions Leasing a Car Other Local Transportation Expenses Reporting Transportation Expenses on Your Tax Return Sole Proprietors LLCs and Partnerships Corporations When Clients or Customers Reimburse You Review Questions Review Answers Chapter 9 Leaving Town: Business Travel Learning Objectives Introduction What Is Business Travel? Where Is Your Tax Home? Your Trip Must Be for Business Deductible Travel Expenses Traveling First Class or Steerage Taking People with You iii

5 How Much You Can Deduct Travel Within the United States Travel Outside the United States Conventions Travel by Ship Calculating Time Spent on Business Fifty Percent Limit on Meal Expenses Maximizing Your Business Travel Deductions Plan Ahead Make a Paper Trail Maximize Your Business Days Take Advantage of the Sandwich Day Rule Travel Expenses Reimbursed by Clients or Customers Review Questions Review Answers Chapter 10 Inventory Learning Objectives Introduction What is Inventory? Supplies Are Not Inventory Incidental Supplies Long-Term Assets Deducting Inventory Costs Nonincidental Materials and Supplies Deduction Current Deduction for Inventory Maintaining an Inventory Determining the Value of Inventory Review Questions Review Answers Chapter 11 Hiring Help: Employees and Independent Contractors Learning Objectives Introduction Employees Versus Independent Contractors Tax Deductions for Employee Pay and Benefits Payroll Taxes State Payroll Taxes Employee Fringe Benefits Employing Your Family or Yourself Employing Your Children Employing Your Spouse Rules to Follow When Employing Your Family Employing Yourself Tax Deductions When You Hire Independent Contractors No Deductions for ICs Taxes Paying Independent Contractors Expenses Review Questions Review Answers Chapter 12 What if You Get Sick? Deducting Medical Expenses Learning Objectives Introduction The Affordable Care Act (Obamacare) Individual Health Insurance Mandate Exemptions from the Mandate Tax Penalty for Noncompliance iv

6 The Employer Mandate Obamacare Health Insurance Rules State Health Insurance Exchanges Open Enrollment Periods Health Insurance Premium Assistance Credits The Personal Deduction for Medical Expenses Deducting Health Insurance Premiums Personal Income Tax Deduction for the Self-Employed Deducting Health Insurance as a Business Expense Tax Credits for Employee Health Insurance Health Reimbursement Arrangements Spousal Health Reimbursement Accounts What Expenses May Be Reimbursed? How to Establish a Spousal HRA Sample Spousal HRA HRAs for Businesses With Multiple Employees Health Savings Accounts What Are Health Savings Accounts? Establishing Your HSA Making Contributions to Your HSA Withdrawing HSA Funds Are HSAs a Good Deal? HSAs for Employees Tax Reporting for HSAs Review Questions Review Answers Chapter 13 Deductions That Can Help You Retire Learning Objectives Introduction Why You Need a Retirement Plan (or Plans) Tax Deduction Tax Deferral Individual Retirement Accounts (IRAs) Traditional IRAs Roth IRAs Employer IRAs SEP-IRAs SIMPLE IRAs Keogh Plans Types of Keogh Plans Setting Up a Keogh Plan Withdrawing Your Money Solo 401(k) Plans Review Questions Review Answers Chapter 14 More Home Business Deductions Learning Objectives Introduction Advertising Goodwill Advertising Giveaway Items Website Development and Maintenance Business Bad Debts Requirements to Deduct Bad Debts Types of Bad Debts v

7 Casualty Losses Amount of Deduction Damage to Your Home Office Tax Reporting Charitable Contributions Dues and Subscriptions Education Expenses Starting a New Business Minimum Educational Requirements Traveling for Education Entertainment and Meals Entertainment Meals Gifts Insurance for Your Business Homeowners Insurance for Your Home Office Car Insurance Interest on Business Loans Home Offices Car Loans Loans from Relatives and Friends Loans to Buy a Business Interest You Can t Deduct Deducting Investment Interest Legal and Professional Services Buying Long-Term Property Starting a Business Accounting Fees Taxes and Licenses Income Taxes Self-Employment Taxes Employment Taxes Sales Taxes Real Property Taxes Other Taxes License Fees Review Questions Review Answers Chapter 15 Record Keeping and Accounting Learning Objectives Introduction What Records Do You Need? Business Checkbook and Credit Cards Records of Your Income and Expenses Paper Versus Electronic Records Create Your Own Spreadsheet Personal Finance Software Small Business Accounting Software Online Bookkeeping Tracking Your Business Expenses Supporting Documents Records Required for Specific Expenses Automobile Mileage and Expense Records Travel, Meal, and Gift Expenses Listed Property How Long to Keep Records vi

8 What If You Don t Have Proper Tax Records? Accounting Methods Cash Method Accrual Method Tax Years Review Questions Review Answers Chapter 16 Businesses Owned By Spouses Learning Objectives Introduction An Employer-Employee Arrangement Social Security Tax Savings Bona Fide Employee Requirement Reasonable Compensation Requirement Your Spouse Won t Qualify for Social Security? So What! What About Limited Liability? Establish a Qualified Joint Venture Qualifying for QJV Status Community Property Sole Proprietorships Form a Business Entity Do Nothing Review Questions Review Answers Chapter 17 Eight Tips for Avoiding an IRS Audit Learning Objectives Introduction Tip #1: Be Thorough and Exact Tip #2: Don t File Early Tip #3: Form a Business Entity Tip #4: Explain Items the IRS Will Question Tip #5: Avoid Ambiguous or General Expenses Tip #6: Report All of Your Income Tip #7: Watch Your Income-to-Deduction Ratio Tip #8: Beware of Abnormally Large Deductions Review Questions Review Answers Glossary Index vii