Inside Small Business | Small Business & Home Business Marketing

Tax Tips for 2008

John Ismerio

1. Contribution to I.R.A.s

If you haven’t already funded your retirement account for 2007, do so by April 15, 2008. That’s the deadline for a contribution to a traditional IRA, deductible or not, and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2008, you can wait until then to put 2007 money into those accounts. Don’t dawdle though.

Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal. If you put away $4,000 a year for 20 years in an investment with an average annual 10 percent return, your $80,000 in contributions will grow to $252,000. The same investment in a taxable account would grow to only $186,000 if you’re in the 25% federal tax bracket (and even less if you live in a state with a state income tax to bite into your return).

Savings: Your savings will vary. If you are in the 25 percent tax bracket and make a deductible IRA contribution of $4,000, you will save $1,000 in taxes the first year. Over time future contributions you make will save you thousands, depending on your contribution, income tax bracket, and number of years you keep the money invested.

2. Organize Your Records, NOW!

Good organization may not cut your taxes. But there are other rewards, and some of them are financial. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax forms, this year’s W-2s and 1099s, receipts, and so on.

If you really want to make tax season go smoothly, use a personal finance software program like Quicken throughout the year so you have easy access to all the information you need.

How do you get started?

- Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.

- Keep all the information that comes in the mail in January, such as W-2s, 1099s, and mortgage interest statements. Be careful not to throw any tax-related documents out even if they don’t look very important.

- Collect receipts and information that you have piled up during the year.

- Group similar documents together, putting them in different file folders if there are enough papers.

- Make sure you know the price you paid for any stocks or funds you have sold.

- If you don’t, call your broker before you start to prepare your tax return.

- Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.

Savings: Hours of your time right off the bat. To complete your return easily and accurately use a tax software program such as TurboTax.

3. Itemize, don’t just take the Standard when possible!

It’s easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home, or live in a high-tax area. It’s worth the bother when your qualified expenses add up to more than the 2007 standard deduction of $5,350 for singles and $10,700 for married couples filing jointly. Those amounts increase to $5,450 and $10,900 respectively, for 2008.

Many deductions are well known, such as ones for mortgage interest and charitable donations. Taxpayers, however, sometimes overlook miscellaneous expenses, which are deductible if they tally up to more than two percent of adjusted gross income when they are combined. These deductions include tax-preparation fees, job-hunting expenses, business car expenses, and professional dues.

Remember that you can deduct sales tax paid in 2007 is deductible if it is greater than the amount of state and local income tax paid. IRS tables give you a certain amount to claim for sales taxes paid, based on your income and household size. If you kept your receipts all year, you can compare the total sales tax paid to the table amount and claim whichever is greater.

Savings: Potentially thousands of dollars.

4. Home Office Deduction is more commonly accepted by IRS when properly accounted for!

The eligibility rules for claiming a home-office deduction have been loosened to allow more filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. Doctors, for example, who consult at various hospitals or plumbers who make house calls can now qualify. As always, you must use the space exclusively for business.

Many taxpayers have avoided the home office deduction because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, there should be no problem.

You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance, and housekeeping). The percentage of these costs that is deductible is based on the ratio of the square footage of the office to the total areas of the house. A middle-class taxpayer who uses a home office and pays $1,000 a month for a two-bedroom apartment and uses one bedroom as a home office can easily save $1,000 in taxes a year. People in higher tax brackets with greater expenses can save even more.

Savings: A typical deduction easily can run into thousands of dollars.

5. File and Pay as soon as possible!

If you can’t finish your return on time, make sure you file Form 4868 by April 15, 2008. Form 4868 gives you a six-month extension of the filing deadline to October 15, 2008. On the form, you need to make a reasonable estimate of your tax liability for 2007 and pay any balance due with your request.

Timely requesting an extension is especially important if you end up owing tax to IRS. If you file and pay late, IRS can slap you with a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is

22.5 percent and the late-payment penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.

Savings: Interest and penalties.

ISTAX was founded in 2002 by John Ismerio, M.B.A. With John Ismerio’s innate business talents in this complex field, he has enabled business owners to resolve audits, convert sole proprietors into INCs or LLCs and help them save on taxes; this is the ultimate Accounting & Tax Solution!

ISTAX Accounting & Tax Solutions can be visited on www.myistax.com or contacted toll free at 1-866-My-ISTAX.

           

Posted on Friday, November 30th, 2007 at 4:29 pm and is filed under Marketing, Money/Finance, Small Business. You can follow any responses to this entry through the RSS 2.0 feed.