Ann G. Chiang, CPA
Thank you for the opportunity to service you. Thank you for following my retirement plan to save you taxes.
Showing posts with label Small Businesses. Show all posts
Showing posts with label Small Businesses. Show all posts
Monday, April 18, 2011
Thursday, January 27, 2011
Home-office Deductions: Terms of Tax Endearment
Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
If you operate a business out of your home, you may be able to write off a portion of your everyday living expenses. But tax deductions for home-office expenses are not automatic.
Basic rules: Home-office expenses are deductible on your 2010 tax return if you use part of the home "regularly and exclusively" as either the principal place of your business or a place to meet or deal with patients, clients and customers in the normal course of business. Also, you may deduct expenses attributable to a detached structure--such as a garage or shed--used in connection with your business.
If you are an employee, the home office must be used for the convenience of the employer. Keep your employment contract as proof of the condition.
The basic rules are relatively straightforward, but several key terms require further explanation.
Regular and exclusive use: To meet this requirement, you must use a specific area of your home only for business reasons. The specific area can be a room or even an identifiable space within a room. It does not have to be permanently enclosed, but doing so strengthens your tax position.
If you use the office portion of the home occasionally or sporadically for personal reasons, the personal use "taints" the home office. Thus, no deductions are allowed.
Note that certain exceptions apply for day care centers and facilities for the aged or disabled. Furthermore, if a home is a principal place of business and a specific area is used for inventory or product storage, the area qualifies for depreciation deductions if it is used regularly for business.
Principal place of business: If you are self-employed and work exclusively from home, it is obvious that your home office is your principal place of business. But this determination is not always so clear cut. For instance, you might perform some business functions at home, but spend most of your time visiting clients, customers or patients at other locations.
The law in this area seesawed back and forth for years, but you can currently qualify for home-office deductions if you perform administrative and management functions at home and you have no other fixed business location for these functions. Administrative and managerial activities may include
*billing and invoicing
*keeping books and records
*ordering supplies
*setting up appointments
*researching and writing reports
However, you are not disqualified if you arrange to have administrative or managerial duties performed at other locations. For example, you might outsource payroll duties or handle customer inquiries on your laptop in hotels or airports. Similarly, you will not be penalized if you spend more time on the road than at home.
Convenience of employer: An employee is entitled to deduct home-office expenses only if he or she is specifically required by the employer to maintain a home office. Thus, a dedicated worker who brings work home nights and weekends usually does not qualify. It does not matter if the work at home results in a benefit to the employer--it must be an absolute condition of employment. In addition, keeping a home office must be justified by the nature of the job.
Contact a professional tax adviser for the application of these tax rules to your personal situation.
If you operate a business out of your home, you may be able to write off a portion of your everyday living expenses. But tax deductions for home-office expenses are not automatic.
Basic rules: Home-office expenses are deductible on your 2010 tax return if you use part of the home "regularly and exclusively" as either the principal place of your business or a place to meet or deal with patients, clients and customers in the normal course of business. Also, you may deduct expenses attributable to a detached structure--such as a garage or shed--used in connection with your business.
If you are an employee, the home office must be used for the convenience of the employer. Keep your employment contract as proof of the condition.
The basic rules are relatively straightforward, but several key terms require further explanation.
Regular and exclusive use: To meet this requirement, you must use a specific area of your home only for business reasons. The specific area can be a room or even an identifiable space within a room. It does not have to be permanently enclosed, but doing so strengthens your tax position.
If you use the office portion of the home occasionally or sporadically for personal reasons, the personal use "taints" the home office. Thus, no deductions are allowed.
Note that certain exceptions apply for day care centers and facilities for the aged or disabled. Furthermore, if a home is a principal place of business and a specific area is used for inventory or product storage, the area qualifies for depreciation deductions if it is used regularly for business.
Principal place of business: If you are self-employed and work exclusively from home, it is obvious that your home office is your principal place of business. But this determination is not always so clear cut. For instance, you might perform some business functions at home, but spend most of your time visiting clients, customers or patients at other locations.
The law in this area seesawed back and forth for years, but you can currently qualify for home-office deductions if you perform administrative and management functions at home and you have no other fixed business location for these functions. Administrative and managerial activities may include
*billing and invoicing
*keeping books and records
*ordering supplies
*setting up appointments
*researching and writing reports
However, you are not disqualified if you arrange to have administrative or managerial duties performed at other locations. For example, you might outsource payroll duties or handle customer inquiries on your laptop in hotels or airports. Similarly, you will not be penalized if you spend more time on the road than at home.
Convenience of employer: An employee is entitled to deduct home-office expenses only if he or she is specifically required by the employer to maintain a home office. Thus, a dedicated worker who brings work home nights and weekends usually does not qualify. It does not matter if the work at home results in a benefit to the employer--it must be an absolute condition of employment. In addition, keeping a home office must be justified by the nature of the job.
Contact a professional tax adviser for the application of these tax rules to your personal situation.
2011 Common Benefits of a Business
Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
2011 Business Plan
As you approach the start of another year, you need to project a positive attitude for your business. One way to get things off on the right foot is to draw up a business plan for 2011 and make sure it is properly executed.
Essentially, a "business plan" is a blueprint for running the company on an annual basis. But a comprehensive plan can do much more than that. Here are several benefits you may typically realize from a business plan:
*The plan can provide a needed sense of direction. It will show you where you are, where you're going and how to get there. Of course, the plan does not have to be "unchangeable." For instance, new developments may require slight deviations from your original plan. However, your business decisions probably will be more solid if they are made within the framework of the original plan. If something is way off base, it should raise suspicions.
*A plan forces management to be proactive instead of reactive. Frequently, business managers in small companies tend to "put out fires" as problems arise. Committing a business plan to writing requires a great deal of discipline, but going through the process is worth it. For example, you can poke holes in a hastily conceived plan once you see it in black and white.
*Advance planning usually leads to better communication. For one thing, the process will force you to crystallize your vision of the company. For another, it encourages input from the personnel involved with the planning. This kind of dialogue may be particularly vital, especially in small firms. Reason: The employees have a chance to engage in valuable give-and-take with management.
*A business plan may give you instant credibility in your industry or profession. It can be especially impressive to creditors and the lending officers of the banks you deal with. And it may satisfy a psychological need for you and your company to be taken seriously.
*The plan may be used to help raise capital for the company. For instance, by focusing on accounts receivable in your business plan, you may be able to free up additional funds. Furthermore, a lender will likely require you to present a business plan plus cash projections to obtain a loan.
How do you construct a business plan? In general, most plans include the following: a statement of objectives, strengths and weaknesses, position in the marketplace, future direction, critical issues and so forth.
Generally, it helps to obtain the assistance of an experienced professional. However, there is no magic formula. It's your plan, so you can shape it into a format that seems right to you. In fact, you probably will make changes in the plan's format from year to year. The important thing is to touch all the bases essential to your particular line of work.
Reminder: Use your business plan as guidance--but do not treat is as the "bible." Feel free to modify the plan regularly during the course of the year as circumstances dictate. Your business advisers can provide the necessary assistance in this area.
2011 Business Plan
As you approach the start of another year, you need to project a positive attitude for your business. One way to get things off on the right foot is to draw up a business plan for 2011 and make sure it is properly executed.
Essentially, a "business plan" is a blueprint for running the company on an annual basis. But a comprehensive plan can do much more than that. Here are several benefits you may typically realize from a business plan:
*The plan can provide a needed sense of direction. It will show you where you are, where you're going and how to get there. Of course, the plan does not have to be "unchangeable." For instance, new developments may require slight deviations from your original plan. However, your business decisions probably will be more solid if they are made within the framework of the original plan. If something is way off base, it should raise suspicions.
*A plan forces management to be proactive instead of reactive. Frequently, business managers in small companies tend to "put out fires" as problems arise. Committing a business plan to writing requires a great deal of discipline, but going through the process is worth it. For example, you can poke holes in a hastily conceived plan once you see it in black and white.
*Advance planning usually leads to better communication. For one thing, the process will force you to crystallize your vision of the company. For another, it encourages input from the personnel involved with the planning. This kind of dialogue may be particularly vital, especially in small firms. Reason: The employees have a chance to engage in valuable give-and-take with management.
*A business plan may give you instant credibility in your industry or profession. It can be especially impressive to creditors and the lending officers of the banks you deal with. And it may satisfy a psychological need for you and your company to be taken seriously.
*The plan may be used to help raise capital for the company. For instance, by focusing on accounts receivable in your business plan, you may be able to free up additional funds. Furthermore, a lender will likely require you to present a business plan plus cash projections to obtain a loan.
How do you construct a business plan? In general, most plans include the following: a statement of objectives, strengths and weaknesses, position in the marketplace, future direction, critical issues and so forth.
Generally, it helps to obtain the assistance of an experienced professional. However, there is no magic formula. It's your plan, so you can shape it into a format that seems right to you. In fact, you probably will make changes in the plan's format from year to year. The important thing is to touch all the bases essential to your particular line of work.
Reminder: Use your business plan as guidance--but do not treat is as the "bible." Feel free to modify the plan regularly during the course of the year as circumstances dictate. Your business advisers can provide the necessary assistance in this area.
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