5 Last Minute Tax Savings Tips
The major tax deadline of April 15th is quickly approaching for non-corporation businesses (sole proprietorships, partnerships and LLCs). Here are five quick tax-savings tips you don’t want to forget before the deadline arrives in all its glory.
1. Home Office Deduction
Generally, you can deduct business expenses that apply
to a part of your home if that part is exclusively used on a regular basis…
- -As your principal place of business,
- -As a place to meet with your patients, clients, or customers in the normal course of your trade or business, or
- -In connection with your trade or business if it is a separate structure that is not attached to your home.
This deduction includes both expenses that are directly related to your home office (painting, repairs, etc.), as well as a portion of your indirect costs, which include utilities for your whole house, mortgage interest or rent, real estate taxes, even depreciation on your home.
This can really add up to a substantial deduction.
And if you took the home office deduction last year, but couldn’t use it all (it’s limited by your business profit), you can also carry over any leftover deduction you couldn’t use last year and add it to this year’s deduction. (Check your 2008 Form 8829 and look to see if there is any carryover available for 2009 at the bottom of the form.)
The home office deduction is worth the trouble because it also reduces your self-employment tax amount.
Click here to get the details on how to take the deduction here:
IRS Instructions for Form 8829
2. Write off new equipment (Section 179 deduction)
Rather than depreciate business property over several years, you can choose to expense business assets in the year of purchase. Here are basic guidelines for what qualifies:
- Tangible property, like machines, equipment, furniture
- Off-the-shelf computer software
It does not apply to:
- Real estate
- Property used less than 50% in your business
- Property you inherited or received as a gift
You can “write off” (deduct as an expense) newly purchased assets up to $250,000 for 2009.
This is another smart deduction that helps to reduce both your income tax and your self-employment tax.
Click here to get all the specifics here:
IRS Instructions for Form 4562
3. Use Per Diem Rates for Business meals & incidental expenses while Traveling
As long as you can document your away-from-home business travel, you can deduct a per diem rate (per day) for meals and incidental expenses instead of the need to keep records of and report your actual expenses. This can give you a much bigger deduction if you spend less than the daily rate, not to mention it makes the recordkeeping easier.
Of course, you only get a 50% deduction on meals and entertainment for business purposes, but if you’re frugal, you will still get a much better deduction than you would with claiming actual expenses.
And, yes, this one reduces both income and self-employment taxes.
Click here to get all the specifics here:
IRS Publication 1542
4. Maximize your HSA Contributions
If you have a high-deductible health plan (HDHP) for your health insurance and a Health Savings Account (HSA) for your out-of-pocket medical expenses, you have until April 15th to make your 2009 deductible contributions. That’s up to $3,000 ($4,000 if you are over 55) for a self-only coverage plan, or $5,950 for a family coverage plan.
While this one won’t reduce your Self-employment tax, it is a nice deduction in addition to any self-employed health insurance deduction you can take for what you paid in insurance premiums on that high-deductible haelth plan. This winning combination makes 100% of your medical costs deductible, even if you do not itemize. That’s sweet.
Click here for all the specifics are laid out here:
IRS Publication 969
5. Maximize your IRA Contributions
If you have a traditional IRA, you can still make your 2009 contributions up until April 15, and still claim any deduction you are entitled to (usually for a traditional IRA as opposed to a Roth IRA) now. This is an especially smart choice because when you make contributions to your retirment accounts, you will likely also get the retirement savings contributions credit (depending on your income level, among other things). It’s one of the very few times you can legally get a double-dip for a deduction.
General traditional IRA contribution limits for 2009 are:
$5,000 ($6,000 if you’re over 50 or older) – there are, however, several factors that affect how much of your contribution is deductible.
As a self-employed person though, you may seriously want to consider opening a SEP-IRA, since this type of retirement plan allows you to make larger contributions and thus get bigger deductions on your tax return.
IRAs have lots of twists and turns, but if you already have one set up, or want to set up a quick traditional IRA (you can do this easily) and make a contribution for 2009, it’s just smart to max out your contributions and take the deduction for 2009 by April 15.
Click here to get all the ins and outs of IRAs here:
IRS Publication 590
IRS Publication 560
To keep your tax bill as low as possible, the smartest choice is to do your tax planning BEFORE the end of the year. But at least these tips will help you pay as little as legally possible right now for 2009, and then be all the wiser for 2010.
