IRS Highlights Simplified Option for Home Office Deduction

ABA Tax Accounting | Income Tax Service for Small Businesses

Tax Strategies For Business Owners - Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning this year, there is a new, simpler option to figure the business use of your home.

This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping.

Here are six facts the IRS wants you to know about the new, simplified method to claim the home office deduction.

1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.

2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.

3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.

4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.

5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.

6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.

Considering a Tax Professional? For no obligation free consultation about home office deductions contact us today!

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Are the wages of a domestic worker subject to employment taxes?

ABA Tax Accounting | Payroll Service for Small Businesses | St. Paul, MN Accounting Firm

Payroll Service For Small Businesses - Generally, yes. However, compensation paid to a domestic worker is exempt from Social Security taxes if (1) the payment is in a medium other than cash; (2) the payment is for the employer's portion of Social Security or state unemployment tax; or (3) the cash remuneration paid to the employee in any calendar year is less than the applicable dollar threshold ($1,700 for 2011 and $1,800 for 2012). Compensation paid to a domestic worker is subject to FUTA unless the payment is for the employee's portion of Social Security or state unemployment tax, or if the employer paid wages of less than $1,000 for such service in any calendar quarter in the current or preceding calendar year.

Domestic service performed in the private home of an employer is not subject to income tax withholding. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

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Tax Tips if You’re Starting a New Business

ABA Tax Accounting | New Business Formation 

Tax Strategies For Business Owners - If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started.

1. Type of Business.  Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Types of Taxes.  The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number.  A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.

4. Recordkeeping.  Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.

5. Accounting Method.  Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.

For no obligation free consultation contact us today!

ABA Tax Accounting

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