Tag Archives: tax deduction

Section 179 Depreciation

Use Section 179 Tax Deduction on Your SUV

Section 179 Tax Deduction Overview

People complain about our tax system.   I actually like our system.  It favors those who know the section 179 vehiclerules.  My favorite tax rule can be found in IRC Section 179 tax deduction.  This section of tax code defines the accelerated deductions available for tangible personal property used for business use.  It is a great way for the government to help you purchase the capital equipment you need to run your business.  Section 179 is part of the stimulus package enacted in 2008 and it keeps getting extended.  You immediately can claim up to $25,000 deduction on a Section 179 qualifying vehicle.

Section 179 Limits

The yearly Section 179 tax deduction limit is $500,000 per year.  You may purchase up to $2,000,000 of qualifying property each year.  The bonus deprecation has been extended.  It is 50% in 2016 and 2017, 40% in 2018 and 30% in 2019.

Business Income Sources

1)     Net income or loss from your business

2)     Net income or loss from the spouses business

3)     Proceeds from the sale of assets from you and your spouse’s business

4)     Interest income from you and your spouse’s business

5)     Net income or loss of your rental property business

6)     Gains or losses from the sale of rental property which qualify for section 1231

7)     And finally, you and your spouse’s other W-2 earned income

That is a lot of income.   I purposefully saved the W-2 income for last.  It is the source of the most confusion (I must reiterate here that I always advise using a tax specialist.  I do not give tax advice.)

Married Tax Payers and Section 179

The IRS treats you and your partner as single taxpayer when you file jointly.  If you file separately, you must declare how you are going to account for the Section 179 deductions.

Section 179 Example

Your business has $10,000 income for the year and your spouse earned $75,000 in W-2 income.  You buy a qualifying SUV for $37,500.  Your total income is $85,000.  You deduct the maximum allowed $25,000 for the vehicle. You are under the $500,000 limit.  Your taxable income is now $60,000.  If you are in the 30% tax bracket, you just saved $7,500 in federal income taxes. 

Section 179 is a rule you definitely want to know, understand and use.  It will help save you tens of thousands of dollars in your business.  

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Graduates walking

How to get a college tax deduction paying your children

Pay for college and get a tax deductionTax Return

Learn a great tax deduction strategy.  Helping your children pay for college is one of those benefits of being a parent.  Helping them pay for college and getting a tax deduction is a benefit of being a business owner.  This post applies to your college age children over 18.  When you hire a child who is under 18 for your proprietorship, they are exempt from payroll taxes.  However, that is not the case for children over 18.  Here is how you get the college tax deduction.

Hire the child for odd jobs

Summer is a great time for children to earn some money for college.  You will likely have odd jobs around your Home Office during the summer months.  Things your children can do include

  • prepare mass mailings
  • distribute fliers
  • make home office repairs
  • Update social media campaigns
  • Work on your website
  • research blog posts

Contract labor rather than W-2 employee

If you hire your child as a W-2 employee, you will have to pay employment payroll tax.  You will not pay these taxes if you hire the child as contract labor.  You ask, “Does this make my child subject to self-employment taxes?”  No

The Supreme Court ruled that self-employment trade or business meant the job needs to be have continuity and regularity.  The contract jobs described above are not regular.  They are certainly not meet continuity.  They are not part of a trade or business.  There is no expectation that your child will start a business performing occasional tasks like those described above.  They are one-off tasks.  Such activity ends with the summer.

Because your child is not in a business, you provide all of the materials.  They provide the labor.  They should not have business expenses to claim.  

Making the college tax deductions work

You pay your child $10,000 for the summer.  There are no payroll deductions.  It is a business expense to you and you deduct the $10,000.  In the 30% tax bracket, you save $3,000 in federal taxes.  The child will pay 6% or $600 in taxes.  The net savings for the family is $2,400 and the added bonus of the child learning to earn money.

DISCLAIMER

This article is for training purposes only.  Jody Wall does not warranty the accuracy of the training.  It is not intended to be legal or accounting advice.  Seek competent consultation for your particular situation. Readers assume all responsibility for their decisions.

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Home office tax deduction

Home office tax deductions can save you thousands

Home Office Tax Deductions Defray Living Expenses

Home office tax deductions offer so many tax advantages it makes me wonder why more people

Home office

Home office

do not start their own business.  One of the rewards of being a business owner is cutting back on the daily commute grind.  The home office is a way to transfer some of your living expenses to your business and get a deduction.  Some of the benefits of the home office include:

  •  Deduct a portion of mortgage interest, taxes, insurance, utilities
  •  Repair deductions – repairs on your principle residence are not deductible but office repairs are.
  •  Pest control
  •  Office equipment depreciation
  •  Building depreciation

Home Office Tax Deduction Limits

These amounts really add up.  The amount of the deduction is limited to the income from the business.  If you no income, you do not have a deduction.  If you have little income, you have little deduction.  You may think, “I do not make any money now so the home office deduction is not worth it.”  That thinking is faulty.  I always say, “Every deduction is sacred.  Every deduction counts.  Deductions shall not be wasted.  Oh make the tax man shout.”  Claim the deductions now and every year.  They can be forwarded to future tax years in perpetuity until you do have income to attack.  If you are in business, you intend to make money.  When you do, limit the amount the tax man taketh.

Example Home Office Tax Deduction Calculations

 The table calculates the home office deduction of 10% office use of a 1400 square foot home.  You paid $140,000 for the home. 

Item Gross Expense Office Percentage Deduction
Interest $5,136 10% $513.60
Property Tax $2,400 10% $240.00
Insurance $800 10% $80.00
Utilities $3,200 10% $320.00
Depreciation $4,364 10% $436.40
Repairs – whole house $3,000 10% $300.00
Repairs -office $400 100% $400.00
Total $1,854.00
25% tax Bracket $463.50

I know I would rather have the $463 in my pocket rather than the governments. If I deferred this amount for two years, it will still be a tidy sum and will be added to the intervening year’s deductions.

Vehicle Tax Deduction

Commuting to work is not considered business miles.  Eliminating the commute will lower the number of personal miles on your vehicle.  You benefit from a higher percentage of business use and save yourself the wear and tear on your vehicle and your stress.  I certainly do not miss sitting in traffic 90 minutes a day.

DISCLAIMER

This article is for training purposes only.  Jody Wall does not warranty the accuracy of the training.  It is not intended to be legal or accounting advice.  Seek competent consultation for your particular situation. Readers assume all responsibility for their decisions.

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