Keep good records
The easiest way to ensure that you are claiming the deductions you're entitled to claim, and reporting all the income you're required to report, is to document, document, document. Try these tips to make the process easier:
? Use a separate checking account for your business. If you combine business and personal expenses, the IRS may believe that certain legitimate business deductions are actually personal expenses, which you can't deduct.
? Get a separate credit card for your business so 100 percent of your credit card interest and annual fees are deductible.
? Set up a simple record keeping system.
? Keep track of all expenses, even when you're not sure they are deductible. Your tax professional can help you claim the right expenses. Some easily overlooked costs include dues, like those paid to a chamber of commerce or civic organization, subscriptions to trade publications, business cards and Internet ads.
Leave depreciation options open
For this step, you still keep records. But when they are for property that you will be using in your business for several years, your records will need to do more than just note the date of purchase and the cost of the item. Because you expect items such as machinery or office furnishings to last for more than one year, you generally depreciate those items or recover your cost for them over several years. Try these tips to make sure you use the best method of depreciation for your business:
? Time your purchases for the best options. If you can, buy items early in the year so your first-year depreciation deductions aren't limited.
? Start using the items as soon as possible. For tax purposes, the date you start using the item for your business is more important than the date you buy it.
? Keep track of your business use on assets that you also use for personal tasks. The amount of depreciation you'll be allowed on your home computer, for example, is directly related to the percentage of time you use the computer for business.
Treat yourself as an employee
If you haven't incorporated, you can't deduct any “wages” you pay yourself. But you can establish a health insurance or pension plan for your business, even if you're the only one working in the business. Your costs in such plans are generally deductible on Form 1040, whether or not you itemize.
For more information, call an H&R Block tax professional at (760) 433-1040.
The easiest way to ensure that you are claiming the deductions you're entitled to claim, and reporting all the income you're required to report, is to document, document, document. Try these tips to make the process easier:
? Use a separate checking account for your business. If you combine business and personal expenses, the IRS may believe that certain legitimate business deductions are actually personal expenses, which you can't deduct.
? Get a separate credit card for your business so 100 percent of your credit card interest and annual fees are deductible.
? Set up a simple record keeping system.
? Keep track of all expenses, even when you're not sure they are deductible. Your tax professional can help you claim the right expenses. Some easily overlooked costs include dues, like those paid to a chamber of commerce or civic organization, subscriptions to trade publications, business cards and Internet ads.
Leave depreciation options open
For this step, you still keep records. But when they are for property that you will be using in your business for several years, your records will need to do more than just note the date of purchase and the cost of the item. Because you expect items such as machinery or office furnishings to last for more than one year, you generally depreciate those items or recover your cost for them over several years. Try these tips to make sure you use the best method of depreciation for your business:
? Time your purchases for the best options. If you can, buy items early in the year so your first-year depreciation deductions aren't limited.
? Start using the items as soon as possible. For tax purposes, the date you start using the item for your business is more important than the date you buy it.
? Keep track of your business use on assets that you also use for personal tasks. The amount of depreciation you'll be allowed on your home computer, for example, is directly related to the percentage of time you use the computer for business.
Treat yourself as an employee
If you haven't incorporated, you can't deduct any “wages” you pay yourself. But you can establish a health insurance or pension plan for your business, even if you're the only one working in the business. Your costs in such plans are generally deductible on Form 1040, whether or not you itemize.
For more information, call an H&R Block tax professional at (760) 433-1040.