YEBies Presents: Weekly Tax Tips For The Win (WTTFTW) Week 4
Alright, we took a week off (I had client demands) but we are back hitting you upside the head with that extensive tax knowledge. This edition of WTTFTW is geared towards people that either own their own business or those employed as independent contractors.
Tax Tips #1 & 2 : Understanding Bonus Depreciation This year the tax law includes 2 sections (179 and 168(k)) on bonus depreciation. As you may or may not know, most business expenses for items that will be in use over one year must has to be depreciated. However, in order to encourage business owners to make the government created two separate sections that will allow you claim your expenses faster.
Section 179 Deduction allows you to deduct the first $250,000 of equipment purchased within the tax year. Most small businesses and independent contractors do not have more than 250K worth of expenditures in a tax year, so Section 179 would allow you to deduct all of your expenses on your tax return. However, for those with more than there is an additional deduction you can take. Section 168(k) Bonus Depreciation - This bonus depreciation allows you to deduct 50% of the purchase price of the asset in the year it was purchased. When applying these 2 sections you would first take the 179 deduction and then the 168(k) bonus depreciation. For example, If you spent 600K on equipment on 2009, you would be able to expense 250K under 179 immediately. After that the remaining 350K(600-250) would be reduced by 50% under section 168(k). The remaining 175K would be depreciated over the life of the equipment.
Tax Tip #3 : Home Office Expenses If you operate a home office, you may qualify to deduct a portion of your home expenses (which are normally not deductible for tax purposes). The rules for qualifying for a home office deduction can be found at this site. If you qualify, the amount of the expenses you can take is a percentage, calculated in two ways. 1) Taking the Sq. Ft of your office and dividing it by the Sq Ft. of your house or 2) dividing 1(the office) by the amount of rooms in your house. So, if you had utility bills of 4,000 for the year and your office is 20% of your home, you would be able to take a $800 on your tax return.
That's it for this edition of WTTFTW, by now everyone should have their W-2's and 1099's and should be thinking about their tax returns. Leave questions in the comment section or e-mail firstname.lastname@example.org and I will try to answer all questions.
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