If you are starting your own business, there are tax breaks for the self-employed that you are entitled to under the tax code. Here are three key fields that you should know.
If you use a portion of your home regularly and exclusively as your principal place of business, you may deduct mortgage interest and depreciation (or rent), maintenance costs, and utilities associated with your office. The key word here is principal place of business. Your office at home does not have to be your only place of business. If you work at an office from 9:00 A.M. to 5:00 P.M., but moonlight as a consultant from your home office, your home office is your principal place of business for your consulting business.
A new law, this year, allows a home office to be a principal place of business if it is used for substantial or administrative tasks. Previously, you needed to create the revenue from the home office. It is essential that you not have any other fixed location for conducting such tasks.
You may also be able to deduct commuting costs. Since your home office is a business location, trips from home to any business location are a business expense. A home computer used in a home office is considered to be a business property and not a "listed property" that can be expensed only if business use is more than 50%.
There are some things you should know when it comes to selling your home, when you use a portion of your home as an office. Check with your CPA to make sure that the part of your home used as an office qualifies for the "home-sale" exclusion.
When claiming a home office deduction, you must file Form 8829, Expenses for Business Use of Your Home. The laws are more liberal than before, but make sure your home office use is legitimate to avoid the fear of an audit.
In 1999, 60% of health insurance premiums are deductible as an adjustment to gross income. The other 40% can be deducted as an itemized medical expense, if your total medical expsenses exceed 7.5% of your Adjusted Gross Income.
The percentage of medical insurance premiums that will be deductible as an adjustment to gross income will increase to 100% by the year 2003.
Significant changes in the tax laws governing retirement plans make it a necessity for self-employed individuals to review their current retirement plans.
Self-employed individuals who participate in plans with salary reduction arrangements such as 401(k)plans, may now match these contributions as if they were employees.
Savings Incentive Match Plans for Employees (SIMPLE) allow salary reduction contributions up to $6,000, plus certain employer contributions. In a SIMPLE-IRA, for example, it is possible for a self-employed individual with high income to have $12,000 contributed to his account. The family's total retirement plan additions can be as much as $24,000 if a spouse works for the company.
Whether it is a SIMPLE plan, Roth IRA or 401(k), a call to your CPA could make your retirement years worry free.