2008 Business Tax Tips

While you are gathering information for your income tax return(s) and making plans for the new business tax year; you can keep that resolution to improve your business recordkeeping. Here’s a little motivation to keep you going all year long…. Good records are essential in supporting your deductions. Organized records can reduce your tax liability and possibly your accounting fees too.

The following list of tax tips covers both tax years.

BUSINESS MILEAGE:
The standard business mileage rate set by the Internal Revenue Service is 50.5 cents per mile for 2008 (48.5 cents per mile for 2007). You need to maintain written documentation of the miles you drive and the business purpose. You can use any method that works for you – paper log; PDA or smartphone. Do not forget trips to the bank, post office, office supply store, seminars or other business events.
JFS has provided a mileage log that is posted on the YAHOO FINANCE GROUPS for Businessmom.net

MEALS & ENTERTAINMENT:
If you entertain customers, clients or employees and want to deduct the expense, there are documentation rules (set out in IRS Publication 463):
• Amount, time, place or description of the place
• Business purpose description – benefit gained or expected to be gained and include the nature and duration of the business discussion
• Identify the people who took part in the business discussion and the nature of the relationship with them
Generally you can deduct only 50% of the business-related meal and entertainment expense.

ONLY Exception --- Meals furnished to employees for the convenience of the employer and provided on the premises are fully deductible by the employer. For example, if you provide lunch to your staff at the office while discussing new health insurance plan and require the employees to attend, the cost of the lunch is fully deductible. NOTE: It is best to record these types of meals in a separate general ledger account.

PAYMENTS TO SUBCONTRACTORS:
These services may include accounting, legal, janitorial, snow removal, lawn care or any other number of services. When you pay more than $600 per year for these services to one unincorporated business or individual, then you need to issue a 1099-Miscellaneous for non-employee compensation.

GIFTS:
You are allowed to deduct up to $25 per person for gifts given during the tax year. Small promotional items with your company name that cost $4 or less that you distribute widely are not considered gifts. Small gifts of food or merchandise to employees during the holidays are deductible and considered part of the employee’s wages.

SUBSCRIPTION & OTHER BUSINESS EXPENSES:
Subscriptions to professional and trade journals that deal with your business field are deductible. Other expenses that are ORDINARY & NECESSARY business expenses are also deductible. You should maintain proof of payment for documentation purposes.

CHARITABLE CONTRIBUTIONS:
You must absolutely keep a bank record, receipt, letter or other written communication from the donee organization indicating the name of the organization, the date of the contribution, and the amount of the contribution.

QUALIFYING PROPERTY EXPENSED:
Under Internal Revenue Code 179, taxpayers may elect to treat the cost of qualifying property as an expense instead of as a capital expenditure. The maximum amount is $128,000 for 2008 ($125,000 for 2007). The property must be:
• tangible and can be new or used (per Code Sec 1245 property)
• depreciable (per Code Sec 168)
• acquired for the use of active conduct of trade or business
• depreciable off the shelf computer software placed in service in 2003 through 2009 may also be expensed

RETIREMENT PLAN CONTRIBUTIONS:
Certain plan contribution limits have been adjusted.
• Defined Contribution Plan – maximum annual contribution limit is $46,000 for 2008 ($45,000 for 2007)
• Defined Benefit Plan – maximum annual contribution is $185,000 for 2008 ($180,000 for 2007)
• SIMPLE (Savings Incentive match plans for employees) – $10,500 (with $,2500 catch up) for 2008 (same limit as for 2007)
• IRA’s – maximum contribution when covered is $5,000

HOME OFFICE DEDUCTION:
You must meet specific tests to take a deduction for the business use of your home. Also know that your deduction may be limited.
• Qualification:
o The business part of your home must be EXCLUSIVE, REGULAR, and FOR YOUR BUSINESS.
o The business part of your home must be ONE of these – principal place of business, place where you meet clients/customers OR a separate structure you use in connection with business.
• The Deduction is calculated on:
o Business Percentage - compare the size of your home office to your whole house – most common way to calculate: divide the area length used for business by the total area of your home
o Deduction limit –

 If your gross income from the business use of your home = or > total business expenses, you can deduct all of your business expenses.
 If your gross income from that use is < your total business expenses, your deduction for certain expenses is limited. (You can carry over the excess to the next year.)
• Examples of deductible expenses
o Real estate taxes
o Mortgage interest
o Casualty loss (theft; fire; flood; etc.)
o Insurance
o Rent
o Repairs, i.e., furnace repair, replacement of roof
o Security system
o Utilities
o Telephone – only if the it is a separate line dedicated for the business
o Depreciation

IRS WARNINGS (effective January 30, 2008)– Advance Payment Scams – if you receive any phone calls or emails regarding early refunds or rebate offers. Do NOT give out any personal information. If you suspect a scam please contact IRS. For more details please go to www.irs.gov.

RECOMMENDED WEBSITES to enhance your business accounting and tax knowledge, as well as other GREAT business information:
www.irs.gov
www.allbusiness.com
www.naea.org
www.aipb.org
www.businessknowhow.com
www.bankrate.com
www.toolkit.com
www.womenentrepreneurer.com
www.womenaboutbiz.com

Article Source: http://www.wahm-articles.com

Information provided by Lesley Johnson of Johnson Financial Services. Lesley is the mother of four (ages 11, 6, 4, and 2). Her family resides in Pleasant View, TN. You email questions and comments to [email protected] or call the Money Hotline at 816-289-0476. JFS offers many services including: business accounting; income tax preparation and consulting; financial consulting; fiscal training; and personal accounting. www.JFSMONEY.com IRS CIRCULAR 230 Disclosure: Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this list, or any attachment hereto, is not intended or written, to be used, and may not be used to (a) avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b) promote, market, or recommend to another party any tax-related matters addressed herein.

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