Business Tax Tips

If your business is engaged in a qualifying production activity you may be able to take a tax deduction for your U.S. based business activities. The deduction is limited to income arising from qualified production activities in whole or in part based in the United States. The following are qualified production activities:

-Manufacturing based in the United States.

-Selling, leasing, or licensing items that have been manufactured in the United States.

-Selling, Leasing, or licensing motion pictures that have been produced in the United States.

-Construction services in the United States, including building and renovation of residential and commercial properties.

-Engineering and architectural services relating to a US-based construction project.

-Software development in the United States, including the development of video games.

If you have a business that falls into any of these categories and you are not looking at this deduction, you could be missing out on a valuable tax break. Contact us to see if this deduction is for you. If your business is engaged in a qualifying production activity you may be able to take a tax deduction for your U.S. based business activities.

It is generally accepted that people prefer to make a living doing something they like. A hobby is an activity for which you do not expect to make a profit. If you do not carry on your business or investment activity to make a profit, there is a limit on the deductions you can take. You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. You cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under this limit. So does an investment activity intended only to produce tax losses for the investors.

The limit on not-for-profit losses applies to individuals, partnerships, estates trusts, and S corporations. For additional information on these entities, refer to business structures. It does not apply to corporations other than S corporations. In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

-You carry on the activity in a business-like manner,

-The time and effort you put into the activity indicate you intend to make it profitable,

-You depend on income from the activity for your livelihood,

-Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),

-You change your methods of operation in an attempt to improve profitability,

-You, or your advisors, have the knowledge needed to carry on the activity as a successful business,

-You were successful in making a profit in similar activities in the past,

-The activity makes a profit in some years and the amount of profit it makes, and

-You can expect to make a future profit from the appreciation of the assets used in the activity.

Your business may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business profit and loss on your federal income tax return, according to the IRS. That's because the deductible business expense threshold for filing Schedule C-EZ of the Form 1040 is $5,000. This change allows an additional 500,000 small businesses to file the C-EZ rather than Schedule C. Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship). Schedule C-EZ consists of an instruction page and a one-page form with three short parts - General Information, Figure Your Net Profit, and Information on Your Vehicle. The instruction page includes a worksheet for figuring the amount of deductible expenses. If that amount does not exceed $5,000, you should be able to use the C-EZ instead of Schedule C. Contact us to learn more!

Whether you are self-employed or an employee, if you use a portion of your home exclusively and regularly for business purposes, you may be able to take a home office deduction. You can deduct certain expenses if your home office is the principal place where your trade or business is conducted or where you meet and deal with clients or patients in the course of your business. If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it. Your home office will qualify as your principal place of business if you use it exclusively and regularly for the administrative or management activities associated with your trade or business.

There must be no other fixed place where you conduct substantial administrative or management activities. If you use both your home and other locations regularly in your business, you must determine which location is your principle place of business, based on the relative importance of the activities performed at each location. If the relative importance factor doesn't determine your principle place of business, you can also consider the time spent at each location. If you are an employee, you have additional requirements to meet. You cannot take the home office deduction unless the business use of your home is for the convenience of your employer. Also, you cannot take deductions for space you are renting to your employer. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses. Please contact us for more!

It's a moment any taxpayer dreads. An envelope arrives from the IRS - and it's not a refund check. But don't panic. Many IRS letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice provides specific instructions explaining what you should do if action is necessary to satisfy the inquiry. Most notices also give a phone number to call if you need further information.

Most correspondence can be handled without calling or visiting an IRS office, if you follow the instructions in the letter or notice. However, if you have questions, call the telephone number in the upper right-hand corner of the notice, or call the IRS at 1-800-829-1040. Have a copy of your tax return and the correspondence available when you call so your account can be readily accessed.

Before contacting the IRS, review the correspondence and compare it with the information on your return. If you agree with the correction to your account, no reply is necessary unless a payment is due. If you do not agree with the correction the IRS made, it is important that you respond as requested.

Write an explanation why you disagree, and include any documents and information you wish the IRS to consider. Mail your information along with the bottom tear-off portion of the notice to the address shown in the upper left-hand corner of the IRS correspondence. Allow at least 30 days for a response.

Sometimes, the IRS sends a second letter or notice requesting additional information or providing additional information to you. Be sure to keep copies of any correspondence with your records. If you've received a notice and are confused about what to do next, please contact us and we can help!