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CAUTION
56% Of Home Based Business do not declare all of their income per IRS.
If you have a home based business and claim a large loss you may very likely be audited. Your loss may not be allowed
and you might be required to pay additional taxes, interest, and penalties. This may also apply for previous years!!!!
If you keep losing money in a business the IRS will want to know why
you keep doing it.
Expenses included in the IRS standard mileage allowance are: Gasoline; Insurance; Registration; Repair & Maintenance;
Oil; Repairs; Tires; and Depreciation. Expenses NOT included are: Parking fees; Interest on auto loan; and Tolls.
2007 Standard Mileage
Deduction for Business is 48.5 cents
Medical - 20 cents
Moving - 20 cents
Charitable - 14 cents
YES WE DO !!!
Fox Tax will help you set up Microsoft Excel and Access
applications for your business. It is easier than you think and will very likely increase
your profits. Fox Tax also offers web development. Remember, no one knows your business and circumstances like
you do!
Checklist for Schedules C, E, & F
Common deductions for Schedule C/E listed in red
Common deductions for Schedule F listed in green
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Utilities (Gas/Elec/Water)
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Inventory (Beginning of year)
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Cost/Basis of Livestock Sales
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Livestock (raises)/Produce/Grains Sold
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Cooperative Distributions
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Total Miles Driven (incl
personal)
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Rent/Lease - Vehicles, Etc.
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Rent/Lease - Land/Animals
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Legal & Professional Fees
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Rent - Vehicle/Machine/Equip
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Bank/Credit Union Charges
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Trade Shows/Entrance Fees
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Business Use of Home: Total square feet of home and square feet used for
business use. Day care requires hours used per day; per week; and per year.
PER DIEM
Do you travel within the continental United States, Alaska/Hawaii, or foreign countries? If you do
and are usually gone for more than 24 hours then you may use the per diem rates (CONUS) as found in Publication
1542. Rates start at $99 per day ($60 for lodging
and $39 for M&IE). Local examples of rates for our area are: Chicago-$233
/ Green Bay-$115 / Madison-$138 / Milwaukee-$131.
The above rates apply from January 1, 2007 until September 30, 2007, and are listed under table 3 of pub.
1542. You may use the above rates for the remainder of 2007, or those listed under table 4. Table 4 rate for unlisted
areas is $39 (M&IE) and $70 (Lodging) for a total of $109.
Do You Have a Business or Hobby ?
The IRS does not provide a firm guideline, however, it will presume you're running a real business if you make
a profit in at least 3 of the previous 5 years. Courts have said that the "profit motive
must be primary" and "you had a reasonable chance of making a profit". Pleasure may
also be a factor. If you sell something "for social reasons and for the discounts" you may not
be a business.
Independent Contractor ?
An independent contractor is generally classified when you have the right to "direct only the result of the work"
they (independent contractors) do, but not "the means and methods of accomplishing the result". Any
profit over $400 is generally subject to the self-employment tax.
Keep the Records Until When?
Since there is a need for finality the assessment of additional taxes is generally three
years from the date you filed your return. Likewise, you can not go back more than three years for a refund. The
following are 3 common exceptions:
- It is 6 years if your unreported income is more than 25% of gross
- It is 7 years if you claimed a worhtless security.
- NEVER ENDS, if you filed a "fraudulent" return.
Keep in mind, all of the above relates to infomation on your return, and some of that information may
be more than three years old (non-residential real estate is depreciated over 39 years). We suggest keeping records
for 10 years, and after that keep your return and proof of payment.
UNREPORTED TIPS
A June 2002 high-court ruling has given the IRS the approval to tax
business on employees' unreported tips.
HOME-BASED BUSINESS TAX AVOIDANCE SCHEMES
The IRS tax code firmly establishes that a clear business purpose and profit motive must exist in order
to generate and claim allowable business expenses.
Some examples of personal expenses that are not deductible but are commonly claimed as business expenses in home-based
business tax avoidance schemes include:
- Paying children for services, such as answering telephones, washing cars, etc. and then deductiong these costs as a business
expense is not allowed.
- Deducting excessive car and truck expenses when the vehicle has been used for both business and personal use is not allowecd.
- Deducting personal travel, meals, and entertainment under the guise that "everyone is a potential client" is not allowed.
- Deducting education expenses from the salary wrongfully paid to children as employees also is not allowed.
LESS PAPERWORK
Beginning with tax year 2002, companies with less than $250,000 in gross receipts and less than $250,000
in assets will no longer be required to complete Sch L, M-1 and M-2 of Form 1120, and like parts of 1120-A and 1120S.
For 2004 new M-3 for corporations with assets over $10 million.
DEPRECIATION / NOL
The Tax Act of 2001 allows for increases in depreciation in accordance with MACRS and Section 179 Expensing
Election.
Putting LIFE in Business Audits
A streamlined process called Limited Issue Focused Examination -LIFE- enhances IRS-taxpayer interaction to yield more
focused examinations and a better use of both government and taxpayer resources.
New Rules For Home Based Business
Under the new rules a home office qualifies as the "principal place of business" if it meets the following two
criteria:
(1) The office is used to conduct administrative or management activities.
(2) There is no other fixed location where substantial administrative or management activities are conducted.
(3) For 2008 the IRS will look a little closed at 2007 Sch C relating to the tax gap.
Like-Kind Exchanges
You can avoid a taxable gain when you sell a business or investment property by arranging to acquire another property of "like-kind",
and do an exchange. Most property qualifies, except inventory and stock.
Business Travel
Travel expenses while away from home overnight on business include the cost of transportation, lodging, telephone, laundry,
and other similar expenses which are related to your travel. Educational expenses or costs for attending an activity relating
to your investment planning are not deductible.
Business Meals and Entertainment
Business meals and entertainment expenses are only deductible if they satisfy the "directly related" or "associated
with" rule and test. You must have an expectation of receiving some benefit. Business must be discussed before, during,
or after the activity, and business must be the main focus. For further explaniation to your specific circumstance visit
the IRS web-site (on our "Resources" page).
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