Sunday, January 23, 2011
A taxing time of the year.
With April 15th just around the corner, now is the time to begin the arduous process of gathering all of our financial information from 2010. This process varies for each individual from the highly organized, Excel spreadsheet, receipt- scanning person who finds joy in keeping stats at baseball games to those who stuff every imaginable piece of paper from their pockets into an overflowing shoe box full of movie tickets, post it notes, lint and the occasional receipt. Most of us, fall somewhere in the middle.
When it comes to getting our taxes done, if given the choice, most people would literally opt for going to the dentist for a root canal than having to deal with Uncle Sam. However a little organization and some guidance can make the looming deadline a lot less painful. Here are some tips and advice for the 3 main categories that represent the majority of working Americans.
The independent contractor or sole-proprietor:
Freelancers and consultants alike, these are people who are not on payroll and receive 1099’s as “non-employee” compensation for anything that exceeds $600. Independent contractors have the ability to write off a lot more expenses than someone who is solely an employee of a company such as:
• A percentage of the total square footage of your home office
• Business travel or mileage
• Phone usage/ cell or landline
• HSA plans or Medical Insurance
• Percentage of rent and utilities
• Certain qualified retirement plan contributions
• Work related equipment (i.e. computers, printers, software, etc.)
The business owner:
Anyone who has an incorporated company, whether it’s a C-corp, S-corp or LLC and has salaried employees. There are a myriad of deductions a business owner has. Here are the main ones to lookout for:
• Employees' Pay - You can generally deduct the pay you give your employees for the services they perform for your business.
• Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
• Retirement Plans - Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees', retirement.
• Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
• Taxes - You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
• Insurance - Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.
• Business-Related Education - Such as seminars, classes, educational tapes or CDs and conventions.
The W-2 employee:
W-2 employees are among those who have the least amount of deductions, but also have the most straightforward tax return. The biggest deciding factor as to whether an employee gets a refund or pays at the end of the year is the number of dependents the individual claims. This number can vary from 0 all the way to 10 or more. The less dependents you claim the more taxes get taken out of your paycheck, the more dependents you claim the more money you get to keep during the year. Here are what employees should focus on come tax time:
• If you own your home, the mortgage interest you pay will be one of your biggest write-offs.
• Mortgage interest from rental property
• Your actual dependents, which could be either your children who live with you and do not work or a retired parent or relative that you care for.
• 401k or 403b retirement plans
• Tithing or other charitable contributions
• Interest- from certain loans, such as school loans.
**Questions? Feel free to leave any questions you might have on getting your taxes done on the comment page below, and I will answer them to the best of my ability**