Tax Benefits of Business Ownership
By: Ron Finkelstein | Posted: 08th April 2009
It doesn't matter how you do your taxes: with pencil and paper the old-fashioned way; with a high tech computer program to perform the calculations easily; or having an accountant or other tax professional fill in the blanks. Method isn't important, but knowledge is. Make sure you read and learn about the variety of income tax deductions and credits that can help reduce your tax liability.
An Internal Revenue Service report concludes that the largest amount of claims originate from personal exemptions, and this added up to $842 billion in 2005. As a matter of fact, a lot of taxpayers, take their exemptions - however a lot of other tax advantages might be disregarded.
Be Sure to Take the Tax Credit
Dollar for dollar, income tax credits are more valuable to you than the more familiar deductions. Deductions reduce the amount of money on which you are assessed taxes, while tax credits directly decrease the amount of tax you pay. Take advantage of education credits, and don't neglect the $1000 tax exemption available to eligible taxpayers for each child below the age of 17.
Parents might also be eligible to take tax deductions for child care and dependent costs, as well as summer day-camp and day care costs (but not for a overnight camp). This advantage could save a maximum of $2,100 for you on your taxes.
If you have mutual funds invested overseas or in another country, you might have previously paid foreign taxes. Look at your statements and find out if you qualify for the 'foreign taxes paid' deduction.
Low income earners who pay tax should learn about the saver's credit. The most amount is $1,000. It's aim is to persuade low income earners to save retirement money.
There are large advantages to having a business! The expense election of section 179 can offer the proprietors of a company who have bought supplies like trucks, furnishings, or even computers (there are some restrictions to be able to qualify for this) up to a maximum amount of $125,000.
With this most beneficial deduction, you will be able to acquire without spending any money. Suppose, a contractor is planning to purchase two new vehicles by financing the maximum portion of the price, you can choose the option of purchasing one vehicle through credit. This will help you to save money to the extent of $60,000.
Even better, this particular deduction will decrease the taxable income for your spouse. If you work in contracting, for example, and your wife has a job from which she gets a W-2, your losses may be put against her W-2 amount in order to offset this, according to section 179--in spite of the fact that it may have been brought down to zero previously.
It takes a lot of capital to start a business, so one way to save money is to take the Section 179 deduction to bring down the spouse's earnings to almost zero.
Learn how to claim tax deductions for mileage and other small business tax deductions that can save you tons of money.
Ron Finkelstein is NOT a Tax Attorney or an accountant. He is merely a small business owner who has paid a lot of money over the years to learn a whole lot about Taxes and Time Management. I hope you enjoyed learning these tax tips for the self-employedAbout the Author
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Tags: computer program, income earners, tax liability, pencil and paper, high tech computer, internal revenue service, proprietors, tax exemption