Winter 2008
Tax Tips for Your Business
In this special issue of the Business and Employment Law Newsletter, our attorneys will share tax strategies and tips intended to lower taxes and save money as you prepare your 2007 tax returns and plan for 2008.
Don't Miss the Home-Office Deduction:
The IRS has relaxed the rules for home-office deductions and more business owners can now benefit. You can now claim deductions for home office expenses even if you don't use the home office to meet with clients or you have no fixed business location, as long as the dedicated home office space meets the principal place of business test. This test requires that the home office space be used exclusively and regularly for administrative and management activities of the business and that you have no other fixed location where you conduct substantial administrative or management activities. This is particularly helpful for businesses that perform work at the client's site such as plumbers, electricians and other service professions. Another welcome change allows the taxpayer to take full advantage of the $250,000 tax-free profit upon the sale of a residence. Prior to this change, the taxpayer was required to reduce the amount that could be taken tax-free by a percentage equal to the percentage of space occupied by a home office. Profit resulting from depreciation claimed for a home office will be taxed.
Eligible for a Self-Employed Health Insurance Deduction?
Shareholders of S corporations may be able to amend their past three years' returns if they didn't use the self-employed health insurance deduction as an adjustment to income. Under IRS notice 2008-1, qualifying premiums for the entire family's accident and health insurance premiums are deductible if certain conditions are met. The premiums must be included in the shareholder's wages, but are not subject to Social Security and Medicare taxes, as under the previous policy. The corporation must be paying the premiums on the plan directly, or it must be issuing reimbursement checks to the shareholder/employee, and the policy must cover all employees, not just shareholders. The shareholder/employee cannot simply pay costs out of pocket without having been reimbursed. To claim the deduction write "Filed Pursuant to Notice 2008-1" at the top of each amended return.
Maximize Your Retirement:
You have until April 15, 2008 to fund a retirement account for 2007 including traditional IRA's and Roth IRA's. If you have a Keogh or SEP, you can also file an extension until October 15, 2008 and gain even more time to fund the account. For 2007, the maximum IRA contribution is $4,000, or $5,000 if you are over 50. You may qualify for the full annual IRA deduction if you and your spouse are not eligible to participate in a company-sponsored retirement plan, or if you meet certain income limits even though you or your spouse qualifies for a company plan. The maximum annual addition to a SEP or Keogh is $45,000 for 2007.
Resolve to Keep Better Records:
Now is the time to start tracking business mileage if you are eligible to deduct vehicle expenses as an employee or business owner. Mark down your odometer readings and keep a mileage log. When giving to charity, remember that cancelled checks are not sufficient records and charities are required to give receipts for all donations. The receipt must include the name and address of the charity, the date and amount of your donation, and the phrase "no goods or services were received" or the value of the goods or services you did receive. It is also helpful to note the charity's taxpayer identification number.
Disclaimer and IRS Circular 230 Notice:
The material on our website and in this newsletter has been prepared for informational purposes only. It does not constitute legal advice, and transmission of information from this site is not intended to create, nor does its receipt constitute, an attorney-client relationship between Nauman Smith Shissler and Hall, LLP and the visitor to this site. The information contained in this newsletter is not intended as tax advice. As required by IRS Circular 230, we inform you that any information contained in this newsletter is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or for the purpose of promoting, marketing or recommending to another party, any tax-related matter addressed herein.
Nauman Smith Shissler & Hall, LLP
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Harrisburg, PA 17101
717.236.3010
fax: 717.234.1925
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