Tags |
|
|
Links |
|
|
Actual for You - Deducting the Home Office: Who Cares About Recapture?
“If your paying 17% interest rates, and you can pay them off, its just like making a 17% return on that money, because you will no longer lose it”Financial problems are not easy to come to terms with. Often we ignore them because we do not know how to correct them. Most people do not realize that they are financial trouble until they are severely in debt. If you are struggling to meet your monthly payments, if you are borrowing from one credit card to pay another, or if one or more of your credit cards are in collection – it's time to take control of your expenses.Even for folks who are not in debt, below are some tips to improve your financial situation and invest in your future. Having self control can be a tricky task but the time and effort spent on cleaning up your debt situation is well worth it.Budget – Do you cringe at the thought to of a budget? Try to think of it as a 'spending' plan and remember it will help improve your financial stability. A great place to start is to list all your income and then list expenses – mortgage or rent payments, auto loan, and utilities. These expenses do not vary from month to month and are considered fixed.Next list your expenses that do vary – entertainment, transportation, and gas. The goal is to plan a way in which all your expenses are being paid, then cut luxury spending and pay down credit card debt. Making the budget is the easy part, sticking to it is much more difficult. Be strong and think about your future.Contact - If you are behind on credit card payments contact your creditors. Most credit card companies are willing to work with you and schedule payments that fit your budget. Turning over your account to a debt collector costs the company money and they would prefer to deal directly with you. This is a good tip for loan and mortgage payments. Mortgage companies do not want you to lose your house.Contact them and explain your current situation to set up a ne
Using the post-1998 39-year straight-line depreciation, this expense would produce annual federal and self-employment tax savings of approximately $167 ($150,000 multiplied by 10% business use equals $15,000, which is divided by 39 to provide $385, in annual depreciation expense, multiplied by the 43.3% combined federal income and self-employment tax rate). If state income tax applies, the annual tax savings would be higher.
Again, the savings resulting from depreciation of 10% of the taxpayer's personal residence seem modest. However, these savings occur each and every year.
Permanent tax savings from homeowner's insurance. Assume that the taxpayer pays an annual amount of $500 in homeowner's insurance. At 10% business use, the taxpayer will be able to deduct only $50 ($500 multiplied by 10%) per year on the Schedule C. However, these savings are, again, permanent. For a taxpayer in the 28% federal income tax bracket, combined federal income and 15.3% self-employment tax savings will approximate $22 ($50 multiplied by 43.3%) per year, every year.
Permanent tax savings from utilities and repairs. Utilities and repairs are generally not deductible. However, for the taxpayer legitimately qualifying for the home office deduction, we can, again, assume 10% business use for utilities and repairs expenses.
A summary example at 10%, 20%, 30% and 40% business use. The above examples and illustrations have separately reviewed the benefits of the home office deduction. TABLE 1 summarizes results where the taxpayer (1) qualifies for the home office deduction, (2) is in a 28% federal income tax bracket, (3) purchased a $250,000 home with 10% down and the remaining 90% financed at 8% for 30 years, (4) allocates the cost b
Today everyone knows at least one person who has lost their job to down-sizing, right-sizing, cut-backs, production reduction or a mean, vicious “bogus leader” who could care less about your family, your life or your existence at the company. This may sound a bit overboard, but everyone has probably experienced the manager, supervisor or company leader from hell, and if you haven’t just stick around.It is this type of leadership that is taking companies down the path of death and destruction. So what’s a jobless person to do? First you must get organized and do a serious self examination. Look at the things you love to do, your gifts and talents. This is not fluff, you may be at the best time of your life if you are willing to get real and do some serious work. You cannot expect others to do this for you, you have to own the unemployment label, and decide where you want to go from here. Leave the pity party for later.Do you have a charismatic personality? Have you ever done sales? Can’t live knowing that your life depends on you getting a commission? Try it. Yes, that’s easy for me to say, but “nothing ventured nothing gained” and you should always have more faith in yourself than a “bogus leader.” It is unfair and foolish for employees today to think that their employer should always have their best interest in mind when planning company growth and expansion. The company leadership is looking out for the bottom line and that’s all. In a perfect world they would care about workers, but this is not a perfect world it’s a global economy and it’s “all about the Benjamin’s.”Here are 10 things you must do before starting your job search:1. Do an honest in-depth evaluation of your job skills. Take a serious look at your management, financial, communication, research and computer skills.2. List all those transferable skills, for example, auditing, appraising, recruiting troubleshooting and organizing, and all those task that
The home office deduction is one of the least understood deductions. Many taxpayers avoid the deduction, frequently on the advice of their tax accountant or attorney, for fear of an IRS audit or concerns over the recapture of depreciation when their personal residence is later sold. This article will provide a brief description of the tax savings components associated with the home office deduction for both itemizer and non-itemizer taxpayers and provide some net present value illustrations so that you can see the impact of the recapture of depreciation when your personal residence is sold. The impact is modest.
The IRS provides detailed instructions on Business Use of Your Home in its Publication 587. This publication is updated every year and is provided to the public, for free, by calling the IRS tax forms 1-800 telephone number or by downloading the publication from the Internet at www.irs.gov . Home office deductions are reported on Form 8829, Expenses for Business Use of Your Home. You should print this article out and discuss it with your tax accountant.
Why deduct the home office?
Self-employed taxpayers establish a home office for several reasons. First, they already own or rent a home, so operating out of their personal residence reduces the duplication of overhead and/or the maintenance of a separate office or place of business. The reduction of overhead, and related monthly cash outlays for the additional expense associated with rent, utilities, etc., reduces business risk and business failure rates. Establishment of the home office as the principal place of the self-employed taxpayer's trade or business also minimizes non-deductible commuting expenses and increases the business use percentage of the business use automobile, not to mention the reduction in the consumption of fuel. In summary, one might be inclined to argue, successfully, that the home office and the legitimate use of the home office deduction is good for the U.S. economy.
Who qualifies for legitimate use of the home office deduction
To qualify for the home office deduction, you must use the business portion of your home…
Exclusively (except for inventory storage or day-care facilities)
AND
Regularly for your trade or business
AND
(1) Your principal place of business
OR
(2) A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business
OR
(3) A separate structure (detached from your home) used in connection with the trade or business.
What are the benefits of legitimate application of the home office deduction?
There are several reasons why taxpayers, legitimately entitled to do so, should deduct their home office:
Real estate taxes and mortgage interest - itemizer. The business use portion of otherwise deductible real estate taxes and home mortgage interest are shifted from the taxpayer's Schedule A (itemized personal deductions) to the Schedule C (deductible business expenses). The legitimate shifting of the business use percentage of the taxpayer's home from Schedule A (reducing both federal and state income taxes) to Schedule C (reducing federal and state income and self-employment tax) results in the additional reduction of the 15.3% self-employment tax. The self-employment tax savings are permanent.
Real estate taxes and mortgage interest – non-itemizer. For taxpayers otherwise unable to itemize, the business use portion of otherwise deductible real estate taxes and home mortgage interested are deducted on the taxpayer's Schedule C. In this case, the taxpayer benefits from combined federal and state income and self-employment tax savings for these deductible expenses that would otherwise provide for no tax savings. In this case, federal and state income and self-employment tax savings for the non-itemizer taxpayers are permanent.
Utilities and other expenses. The business use portion of otherwise non-deductible expenses such as: utilities, repairs, homeowner's association dues, basic cable, etc., are converted to deductible business expenses. Not only are the related self-employment tax savings permanent, but federal and state income tax reductions are also achieved. All of these tax savings are permanent.
Depreciation. The depreciation of the business use portion of the taxpayer's home is otherwise not deductible. This expense is deducted on the taxpayer's Schedule C and results in a reduction of the 15.3% self-employment tax. Even if the taxpayer later sells the house and has to recapture the depreciation deducted, resulting in repayment this component of tax savings, a temporary federal and temporary state income tax deferral and permanent self-employment tax savings from depreciation results.
The first step -prepare a loan amortization schedule. If you own a home, prepare a loan amortization schedule for your home mortgage. I will use an example of a $250,000 home with a 10% down payment ($250,000 multiplied by 10% equals $25,000; $250,000 less $25,000 equals $225,000). The monthly principal and interest payments, at an 8% interest rate, are approximately $1,975 per month for 360 months/30 years.
Permanent self-employment tax savings from home mortgage interest. Over the life of the mortgage, the taxpayer will pay about $485,825 in home mortgage interest. Ignoring inflation (and deflation) and assuming 28% federal income tax and no state income tax (for simplicity) the taxpayer will save $136,031 ($485,825 multiplied by 28%) in federal income taxes. (This calculation is, of course, simplified. I have not considered the standard deduction amount that would be available to non-itemizers.) If 10% of the taxpayer's personal residence is used for business purposes, an additional $7,433 ($485,825 multiplied by 10% equals $48,583, which is multiplied by 15.3%) in self-employment taxes would be saved. Keep in mind, this example of self-employment tax savings (1) is permanent, (2) represents a minimal amount of business use (at 10%), and (3) ignores the other tax savings, previously described. Some additional facts require consideration.
Permanent self-employment tax savings from real estate taxes. Assume that the taxpayer's real estate taxes are $1,500 per year. Of course, these amounts will increase with inflation over time. Again, ignoring inflation of the cost and deflation (to present value) of the tax savings, assume that the taxpayer uses 10% of the home for business purposes. This would result in the transfer of 10% of this cost, $150 ($1,500 multiplied by 10%), from the taxpayer's Schedule A to the taxpayer's Schedule C. The result is additional, permanent self-employment tax savings of $23 ($150 multiplied by 15.3%, rounded) per year, every year.
Permanent tax savings from depreciation (net of recapture). The previous examples have dealt with home mortgage interest and real estate taxes. These items are always deductible, as itemized personal deductions, but have been shifted from the taxpayer's Schedule A to their Schedule C, resulting in additional, permanent self-employment tax savings. We will now proceed to those expenses otherwise not deductible.
Assume that the taxpayer's cost of $250,000 can be allocated between land (not depreciable) and building at 40% and 60%, respectively. The taxpayer can depreciate the building cost of $150,000 ($250,000 multiplied by 60%), but cannot depreciation the land, which is a non-wasting asset that does not experience functional or economic obsolescence.
Using the post-1998 39-year straight-line depreciation, this expense would produce annual federal and self-employment tax savings of approximately $167 ($150,000 multiplied by 10% business use equals $15,000, which is divided by 39 to provide $385, in annual depreciation expense, multiplied by the 43.3% combined federal income and self-employment tax rate). If state income tax applies, the annual tax savings would be higher.
Again, the savings resulting from depreciation of 10% of the taxpayer's personal residence seem modest. However, these savings occur each and every year.
Permanent tax savings from homeowner's insurance. Assume that the taxpayer pays an annual amount of $500 in homeowner's insurance. At 10% business use, the taxpayer will be able to deduct only $50 ($500 multiplied by 10%) per year on the Schedule C. However, these savings are, again, permanent. For a taxpayer in the 28% federal income tax bracket, combined federal income and 15.3% self-employment tax savings will approximate $22 ($50 multiplied by 43.3%) per year, every year.
Permanent tax savings from utilities and repairs. Utilities and repairs are generally not deductible. However, for the taxpayer legitimately qualifying for the home office deduction, we can, again, assume 10% business use for utilities and repairs expenses.
A summary example at 10%, 20%, 30% and 40% business use. The above examples and illustrations have separately reviewed the benefits of the home office deduction. TABLE 1 summarizes results where the taxpayer (1) qualifies for the home office deduction, (2) is in a 28% federal income tax bracket, (3) purchased a $250,000 home with 10% down and the remaining 90% financed at 8% for 30 years, (4) allocates the cost b
Is your charting interface of your forex trading platform all littered with indicators, and you are feeling the increasing stress of forex trading? Truth be told, many forex traders spent countless hours in front of their trading screens, awaiting the onset of a trading signal...to enter or to exit at the proper time and to make the best profits. No wonder, they continue to feel the stress that comes with trading the markets.In the quest to ensure every single movement is tracked, many traders have put in indicator after indicator on their charts. I have seen trading charts that are full of indicators so that by the time the trader has gone through all those indicators, the price would have moved on, away from their entry price, and they would have missed the sweetest part of the move.Depending on how you wish to trade, there are three major trading setups in forex trading that you can consider:1. Trading the breakout of a consolidation trend or a trading pattern such as a rectangle, a pennant, a flag, an ascending triangle or a cup-with-a-handle pattern.2. Trading with the trend - this occurs when you can put in a selling order when the trend has changed from uptrend to downtrend, and to reverse the order when the trend has changed from a downtrend to an uptrend. Many times, there are continuation moves where shorter trends occur within long uptrends and downtrends (called counter trends) where there are opportunities to trade with good prospects of profitablity.3. Trading the tops and bottoms - this occurs after a trend is exhausted, and the forex trader will be watching his chart for W and V bottomming patterns, or a reverse head and shoulder pattern or an inverted hammer. or gravestone doji candlestick pattern and so on.The question is, with the need to monitor all these moves, won't it be a forgone conclusion that the forex chart be invariably clutterred with indicators?This is where trading systems come into play
Who qualifies for legitimate use of the home office deduction
To qualify for the home office deduction, you must use the business portion of your home…
Exclusively (except for inventory storage or day-care facilities)
AND
Regularly for your trade or business
AND
(1) Your principal place of business
OR
(2) A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business
OR
(3) A separate structure (detached from your home) used in connection with the trade or business.
What are the benefits of legitimate application of the home office deduction?
There are several reasons why taxpayers, legitimately entitled to do so, should deduct their home office:
Real estate taxes and mortgage interest - itemizer. The business use portion of otherwise deductible real estate taxes and home mortgage interest are shifted from the taxpayer's Schedule A (itemized personal deductions) to the Schedule C (deductible business expenses). The legitimate shifting of the business use percentage of the taxpayer's home from Schedule A (reducing both federal and state income taxes) to Schedule C (reducing federal and state income and self-employment tax) results in the additional reduction of the 15.3% self-employment tax. The self-employment tax savings are permanent.
Real estate taxes and mortgage interest – non-itemizer. For taxpayers otherwise unable to itemize, the business use portion of otherwise deductible real estate taxes and home mortgage interested are deducted on the taxpayer's Schedule C. In this case, the taxpayer benefits from combined federal and state income and self-employment tax savings for these deductible expenses that would otherwise provide for no tax savings. In this case, federal and state income and self-employment tax savings for the non-itemizer taxpayers are permanent.
Utilities and other expenses. The business use portion of otherwise non-deductible expenses such as: utilities, repairs, homeowner's association dues, basic cable, etc., are converted to deductible business expenses. Not only are the related self-employment tax savings permanent, but federal and state income tax reductions are also achieved. All of these tax savings are permanent.
Depreciation. The depreciation of the business use portion of the taxpayer's home is otherwise not deductible. This expense is deducted on the taxpayer's Schedule C and results in a reduction of the 15.3% self-employment tax. Even if the taxpayer later sells the house and has to recapture the depreciation deducted, resulting in repayment this component of tax savings, a temporary federal and temporary state income tax deferral and permanent self-employment tax savings from depreciation results.
The first step -prepare a loan amortization schedule. If you own a home, prepare a loan amortization schedule for your home mortgage. I will use an example of a $250,000 home with a 10% down payment ($250,000 multiplied by 10% equals $25,000; $250,000 less $25,000 equals $225,000). The monthly principal and interest payments, at an 8% interest rate, are approximately $1,975 per month for 360 months/30 years.
Permanent self-employment tax savings from home mortgage interest. Over the life of the mortgage, the taxpayer will pay about $485,825 in home mortgage interest. Ignoring inflation (and deflation) and assuming 28% federal income tax and no state income tax (for simplicity) the taxpayer will save $136,031 ($485,825 multiplied by 28%) in federal income taxes. (This calculation is, of course, simplified. I have not considered the standard deduction amount that would be available to non-itemizers.) If 10% of the taxpayer's personal residence is used for business purposes, an additional $7,433 ($485,825 multiplied by 10% equals $48,583, which is multiplied by 15.3%) in self-employment taxes would be saved. Keep in mind, this example of self-employment tax savings (1) is permanent, (2) represents a minimal amount of business use (at 10%), and (3) ignores the other tax savings, previously described. Some additional facts require consideration.
Permanent self-employment tax savings from real estate taxes. Assume that the taxpayer's real estate taxes are $1,500 per year. Of course, these amounts will increase with inflation over time. Again, ignoring inflation of the cost and deflation (to present value) of the tax savings, assume that the taxpayer uses 10% of the home for business purposes. This would result in the transfer of 10% of this cost, $150 ($1,500 multiplied by 10%), from the taxpayer's Schedule A to the taxpayer's Schedule C. The result is additional, permanent self-employment tax savings of $23 ($150 multiplied by 15.3%, rounded) per year, every year.
Permanent tax savings from depreciation (net of recapture). The previous examples have dealt with home mortgage interest and real estate taxes. These items are always deductible, as itemized personal deductions, but have been shifted from the taxpayer's Schedule A to their Schedule C, resulting in additional, permanent self-employment tax savings. We will now proceed to those expenses otherwise not deductible.
Assume that the taxpayer's cost of $250,000 can be allocated between land (not depreciable) and building at 40% and 60%, respectively. The taxpayer can depreciate the building cost of $150,000 ($250,000 multiplied by 60%), but cannot depreciation the land, which is a non-wasting asset that does not experience functional or economic obsolescence.
Using the post-1998 39-year straight-line depreciation, this expense would produce annual federal and self-employment tax savings of approximately $167 ($150,000 multiplied by 10% business use equals $15,000, which is divided by 39 to provide $385, in annual depreciation expense, multiplied by the 43.3% combined federal income and self-employment tax rate). If state income tax applies, the annual tax savings would be higher.
Again, the savings resulting from depreciation of 10% of the taxpayer's personal residence seem modest. However, these savings occur each and every year.
Permanent tax savings from homeowner's insurance. Assume that the taxpayer pays an annual amount of $500 in homeowner's insurance. At 10% business use, the taxpayer will be able to deduct only $50 ($500 multiplied by 10%) per year on the Schedule C. However, these savings are, again, permanent. For a taxpayer in the 28% federal income tax bracket, combined federal income and 15.3% self-employment tax savings will approximate $22 ($50 multiplied by 43.3%) per year, every year.
Permanent tax savings from utilities and repairs. Utilities and repairs are generally not deductible. However, for the taxpayer legitimately qualifying for the home office deduction, we can, again, assume 10% business use for utilities and repairs expenses.
A summary example at 10%, 20%, 30% and 40% business use. The above examples and illustrations have separately reviewed the benefits of the home office deduction. TABLE 1 summarizes results where the taxpayer (1) qualifies for the home office deduction, (2) is in a 28% federal income tax bracket, (3) purchased a $250,000 home with 10% down and the remaining 90% financed at 8% for 30 years, (4) allocates the cost b
How would you like a guaranteed personal loan approval? If you’ve got a bad credit score and haven’t got the time to spend on improving it before you apply for your next loan or finance deal, you’ll have to find reputable lenders for people with really bad credit.It can be really difficult to get approval for personal loans if you have a bad credit history. Lenders are reluctant to lend to bad credit applicants because of the high risk of default. Those that do offer a bed credit lending facility will be compensated via high charges and interest rates, making it even harder for you to manage the required repayments.If you’ve you recently applied for a personal loan but had it declined because of your poor credit history, we recommend the following website which specialises in finding lenders for people with really bad credit history. The site Youdeservecredit.org specialises in providing you with introductions to reputable bad credit lenders who offer guaranteed personal loan approval.The site has an exclusive database of lenders for people with really bad credit. These lenders understand the difficulties a bad credit rating can cause and specialise in providing guaranteed personal loan approval. Youdeservecredit.org has years of experience in the credit industry, and only deal with established reputable lenders with a proven track record.As well as supplying you with a list of potential lenders, the site will also arm you with lots of credit industry insider knowledge that will allow you to improve your credit score before you apply, and thus improve the loan terms you get offered further. The savings you can achieve by following their tips can be considerable over the term of your loan.You can find out a lot more about the service offered by the Youdeservecredit.org web site by visiting our Lenders For People With Real
Utilities and other expenses. The business use portion of otherwise non-deductible expenses such as: utilities, repairs, homeowner's association dues, basic cable, etc., are converted to deductible business expenses. Not only are the related self-employment tax savings permanent, but federal and state income tax reductions are also achieved. All of these tax savings are permanent.
Depreciation. The depreciation of the business use portion of the taxpayer's home is otherwise not deductible. This expense is deducted on the taxpayer's Schedule C and results in a reduction of the 15.3% self-employment tax. Even if the taxpayer later sells the house and has to recapture the depreciation deducted, resulting in repayment this component of tax savings, a temporary federal and temporary state income tax deferral and permanent self-employment tax savings from depreciation results.
The first step -prepare a loan amortization schedule. If you own a home, prepare a loan amortization schedule for your home mortgage. I will use an example of a $250,000 home with a 10% down payment ($250,000 multiplied by 10% equals $25,000; $250,000 less $25,000 equals $225,000). The monthly principal and interest payments, at an 8% interest rate, are approximately $1,975 per month for 360 months/30 years.
Permanent self-employment tax savings from home mortgage interest. Over the life of the mortgage, the taxpayer will pay about $485,825 in home mortgage interest. Ignoring inflation (and deflation) and assuming 28% federal income tax and no state income tax (for simplicity) the taxpayer will save $136,031 ($485,825 multiplied by 28%) in federal income taxes. (This calculation is, of course, simplified. I have not considered the standard deduction amount that would be available to non-itemizers.) If 10% of the taxpayer's personal residence is used for business purposes, an additional $7,433 ($485,825 multiplied by 10% equals $48,583, which is multiplied by 15.3%) in self-employment taxes would be saved. Keep in mind, this example of self-employment tax savings (1) is permanent, (2) represents a minimal amount of business use (at 10%), and (3) ignores the other tax savings, previously described. Some additional facts require consideration.
Permanent self-employment tax savings from real estate taxes. Assume that the taxpayer's real estate taxes are $1,500 per year. Of course, these amounts will increase with inflation over time. Again, ignoring inflation of the cost and deflation (to present value) of the tax savings, assume that the taxpayer uses 10% of the home for business purposes. This would result in the transfer of 10% of this cost, $150 ($1,500 multiplied by 10%), from the taxpayer's Schedule A to the taxpayer's Schedule C. The result is additional, permanent self-employment tax savings of $23 ($150 multiplied by 15.3%, rounded) per year, every year.
Permanent tax savings from depreciation (net of recapture). The previous examples have dealt with home mortgage interest and real estate taxes. These items are always deductible, as itemized personal deductions, but have been shifted from the taxpayer's Schedule A to their Schedule C, resulting in additional, permanent self-employment tax savings. We will now proceed to those expenses otherwise not deductible.
Assume that the taxpayer's cost of $250,000 can be allocated between land (not depreciable) and building at 40% and 60%, respectively. The taxpayer can depreciate the building cost of $150,000 ($250,000 multiplied by 60%), but cannot depreciation the land, which is a non-wasting asset that does not experience functional or economic obsolescence.
Using the post-1998 39-year straight-line depreciation, this expense would produce annual federal and self-employment tax savings of approximately $167 ($150,000 multiplied by 10% business use equals $15,000, which is divided by 39 to provide $385, in annual depreciation expense, multiplied by the 43.3% combined federal income and self-employment tax rate). If state income tax applies, the annual tax savings would be higher.
Again, the savings resulting from depreciation of 10% of the taxpayer's personal residence seem modest. However, these savings occur each and every year.
Permanent tax savings from homeowner's insurance. Assume that the taxpayer pays an annual amount of $500 in homeowner's insurance. At 10% business use, the taxpayer will be able to deduct only $50 ($500 multiplied by 10%) per year on the Schedule C. However, these savings are, again, permanent. For a taxpayer in the 28% federal income tax bracket, combined federal income and 15.3% self-employment tax savings will approximate $22 ($50 multiplied by 43.3%) per year, every year.
Permanent tax savings from utilities and repairs. Utilities and repairs are generally not deductible. However, for the taxpayer legitimately qualifying for the home office deduction, we can, again, assume 10% business use for utilities and repairs expenses.
A summary example at 10%, 20%, 30% and 40% business use. The above examples and illustrations have separately reviewed the benefits of the home office deduction. TABLE 1 summarizes results where the taxpayer (1) qualifies for the home office deduction, (2) is in a 28% federal income tax bracket, (3) purchased a $250,000 home with 10% down and the remaining 90% financed at 8% for 30 years, (4) allocates the cost b
A lot of people have a full-time job making money online. But there is an equal amount of people who see making money online as more of a recreational bonus. So if you have some spare time, have a hobby you love, and like the internet, then you could see some extra cash in your account each month.The first thing to do is to identify some good keywords for your particular hobby. There are many free guides on the internet which teach you how to do keyword research. Essentially all you have to do is build a list of good keywords (the words or phrases that people type into search engines when looking for a particular topic) and then you’re ready to build your blog.The second thing to do is to build you blog based on your keywords. Again, there are a wealth of resources available to show you how to properly construct your blog on a foundation of keywords; if you do intend to make good money from your blog, I would strongly suggest doing some research on this or to invest a small sum into an ebook which teaches you how to do it step-by-step. You can build a free blog at Blogspot or Wordpress.Once you have your blog formatted, you will then come to the fun part - posting! Start writing about whatever you like, upload pictures and articles, and make your blog a passionate reflection on the strength of feeling you have for your hobby.The penultimate step is to monetise your blog. There are two main ways to do this. The first is to browse sites such as Clickbank or Commission Junction and to find products which are related to your hobby’s niche. The sale of a product you link from your site will earn you a set amount of commission. The second way is to install Google Adsense on your website. This is a form of text advertising where the adverts printed on your site are determined by the common words used on your blog. It’s quite magical, and you will receive money every time a visitor clicks on one of those adverts.The final step is to drive vi
Permanent self-employment tax savings from real estate taxes. Assume that the taxpayer's real estate taxes are $1,500 per year. Of course, these amounts will increase with inflation over time. Again, ignoring inflation of the cost and deflation (to present value) of the tax savings, assume that the taxpayer uses 10% of the home for business purposes. This would result in the transfer of 10% of this cost, $150 ($1,500 multiplied by 10%), from the taxpayer's Schedule A to the taxpayer's Schedule C. The result is additional, permanent self-employment tax savings of $23 ($150 multiplied by 15.3%, rounded) per year, every year.
Permanent tax savings from depreciation (net of recapture). The previous examples have dealt with home mortgage interest and real estate taxes. These items are always deductible, as itemized personal deductions, but have been shifted from the taxpayer's Schedule A to their Schedule C, resulting in additional, permanent self-employment tax savings. We will now proceed to those expenses otherwise not deductible.
Assume that the taxpayer's cost of $250,000 can be allocated between land (not depreciable) and building at 40% and 60%, respectively. The taxpayer can depreciate the building cost of $150,000 ($250,000 multiplied by 60%), but cannot depreciation the land, which is a non-wasting asset that does not experience functional or economic obsolescence.
Using the post-1998 39-year straight-line depreciation, this expense would produce annual federal and self-employment tax savings of approximately $167 ($150,000 multiplied by 10% business use equals $15,000, which is divided by 39 to provide $385, in annual depreciation expense, multiplied by the 43.3% combined federal income and self-employment tax rate). If state income tax applies, the annual tax savings would be higher.
Again, the savings resulting from depreciation of 10% of the taxpayer's personal residence seem modest. However, these savings occur each and every year.
Permanent tax savings from homeowner's insurance. Assume that the taxpayer pays an annual amount of $500 in homeowner's insurance. At 10% business use, the taxpayer will be able to deduct only $50 ($500 multiplied by 10%) per year on the Schedule C. However, these savings are, again, permanent. For a taxpayer in the 28% federal income tax bracket, combined federal income and 15.3% self-employment tax savings will approximate $22 ($50 multiplied by 43.3%) per year, every year.
Permanent tax savings from utilities and repairs. Utilities and repairs are generally not deductible. However, for the taxpayer legitimately qualifying for the home office deduction, we can, again, assume 10% business use for utilities and repairs expenses.
A summary example at 10%, 20%, 30% and 40% business use. The above examples and illustrations have separately reviewed the benefits of the home office deduction. TABLE 1 summarizes results where the taxpayer (1) qualifies for the home office deduction, (2) is in a 28% federal income tax bracket, (3) purchased a $250,000 home with 10% down and the remaining 90% financed at 8% for 30 years, (4) allocates the cost b
This is a tricky one, you are going back to work after being out of the employment market for a while. Maybe you have been travelling, raising a family, going back to college or running a business and now you want to be employed again, have an income and be in a working environment.Don't try to hide gaps in your CV, potential employers will always pick up on them and it makes it appear that you think the gap is a problem. It should not be.Be open and describe what you have been doing emphasising the benefits, the new experiences you have had earned whilst away from the work environment, what you have learned and any new skills you have acquired.Perhaps you have been doing odd jobs while you were travelling, studying a new language, waiting on tables - no better way to improve your language skills, than taking orders from hungry customers who don't speak your language. You may be looking for a language job when you return.If you have been running your own business, you will have acquired skills and experience that some employees can only dream of, you will be resourceful, good at multi-tasking, accounts literate and certainly more understanding of management.As a returning parent your man management and time management skills will be superb. Your negotiating and organisational abilities will also have improved considerably!Life and common sense skills are invaluable tools in any job and highly valued by employers, so be confident and 'accentuate the positive', don't make excuses for not working, make them good reasons - which they are.© languagejobs4u 2007
Using the post-1998 39-year straight-line depreciation, this expense would produce annual federal and self-employment tax savings of approximately $167 ($150,000 multiplied by 10% business use equals $15,000, which is divided by 39 to provide $385, in annual depreciation expense, multiplied by the 43.3% combined federal income and self-employment tax rate). If state income tax applies, the annual tax savings would be higher.
Again, the savings resulting from depreciation of 10% of the taxpayer's personal residence seem modest. However, these savings occur each and every year.
Permanent tax savings from homeowner's insurance. Assume that the taxpayer pays an annual amount of $500 in homeowner's insurance. At 10% business use, the taxpayer will be able to deduct only $50 ($500 multiplied by 10%) per year on the Schedule C. However, these savings are, again, permanent. For a taxpayer in the 28% federal income tax bracket, combined federal income and 15.3% self-employment tax savings will approximate $22 ($50 multiplied by 43.3%) per year, every year.
Permanent tax savings from utilities and repairs. Utilities and repairs are generally not deductible. However, for the taxpayer legitimately qualifying for the home office deduction, we can, again, assume 10% business use for utilities and repairs expenses.
A summary example at 10%, 20%, 30% and 40% business use. The above examples and illustrations have separately reviewed the benefits of the home office deduction. TABLE 1 summarizes results where the taxpayer (1) qualifies for the home office deduction, (2) is in a 28% federal income tax bracket, (3) purchased a $250,000 home with 10% down and the remaining 90% financed at 8% for 30 years, (4) allocates the cost between non-depreciable land (at $100,000) and depreciable building (at $150,000), (5) pays real estate taxes of $1,500 per year, (6) pays homeowner's insurance at $500 per year, and (7) pays utilities and repairs at $4,500 per year.
TABLE 1 shows federal income tax (at a 28% bracket) and self-employment tax savings for 10%, 20%, 30%, and 40% business use, respectively. These tax savings occur annually, every year. Time value of money considerations has been ignored. If the taxpayer were to sell the home in the eighth year, a one-time recapture-related federal income tax of $755 (at 10% business use) would have to be paid.
Finally, TABLE 1 ignores the additional business use-related deductions and tax savings associated with the reduction of non-deductible commuting and the related increased business use of the taxpayer's vehicle (a separate topic, beyond the scope of this brief article).
TABLE 1
Ex. 1 Ex. 2 Ex. 3 Ex. 4
Business use… ...at 10% ...at 20% ...at 30% ...at 40%
First Year Expenses:
Home mortgage interest $ 2,244 $ 4,489 $ 6,733 $ 8,978
Real estate taxes $ 150 $ 300 $ 450 $ 600
equals: Shifted from Sch A to C $ 2,394 $ 4,789 $ 7,183 $ 9,578
multiplied by: 15.3% SE tax 15.3% 15.3% 15.3% 15.3%
equals: Addit'l SE tax $ 366 $ 733 $ 1,099 $ 1,465
Depreciation $ 385 $ 770 $ 1,155 $ 1,540
Homeowner's insurance $ 50 $ 100 $ 150 $ 200
Utilities and repairs $ 450 $ 900 $ 1,350 $ 1,800
equals: Added to Sch C $ 885 $ 1,770 $ 2,655 $ 3,540
multiplied by: 43.3% 43.3% 43.3% 43.3% 43.3%
equals: Addit'l FIT & SE tax $ 383 $ 766 $ 1,150 $ 1,533
add: Addit'l SE tax (above) $ 366 $ 733 $ 1,099 $ 1,465
Equals: Total tax savings $ 749 $ 1,499 $ 2,249 $ 2,998
Notice that legitimate business use of your personal residence results in (1) the shifting of otherwise deductible personal expenses from your Schedule A to your Schedule C for additional, permanent self-employment tax savings of 15.3%, (2) the deductibility of otherwise non-deductible repairs and utilities expenses on your Schedule C for additional, permanent federal and state income and self-employment tax savings, and (3) depreciation expense, deductible on your Schedule C for additional federal and state and permanent self-employment tax savings.
A time value of money or present value extension – recapture included
Would you prefer to have $1 today or $1 one year from today? If you answered "$1 today," you understand the concept of the time value of money. Over time, price levels increase. Generally, automobiles, fuel costs, food and housing costs increase over time. This is due to inflation. Inflation erodes purchasing power.
The selection of the discount rate. Generally, the discount rate is a function of something referred to in finance as the after-tax cost of capital. Any introductory textbook on corporate finance would cover this topic and how the discount rate is developed for corporations. For the individual taxpayer, a similar measure can be approximated.
For our purposes, you should be less concerned with the precise calculation of your particular cost of capital and more concerned with the understanding of the mechanics and the concept of the time value of money. A discount rate of 10% is used to illustrate the present value of the home office deduction. If you want to learn more about cost of capital, merely visit the library and find an introductory corporate finance text. Look in the chapters devoted to present value and net present value.
TABLE 2 illustrates the benefits from the home office deduction, focusing only on the tax deferral from federal income and self-employment taxes. Like TABLE 1, it is important to keep in mind that this illustration ignores state income taxes, which would increase the value (and present value) of this deduction. Furthermore, if the home is sold at a later date, or never sold, the value (and present value) of these tax savings would increase further. Finally, more than 10% business use would increase the value (and present value) of this deduction significantly.
Converting TABLE 1 results to present value. TABLE 2 illustrates the tax savings associated with 10%, 20%, 30%, and 40% business use of a taxpayer’s personal residence at a 28% federal income tax and 15.3% self-employment tax rate (i.e., 43.3% when combined). TABLE 2 uses this same fact pattern, but only for the first year (for simplification) used in TABLE 1. TABLE 2 develops and illustrates the present value of the decision to legitimately exploit the home office deduction, and assuming that the taxpayer sells his/her personal residence and is, therefore, subject to recapture of the depreciation component, in time period/year 8 at the constant 28% federal income tax rate or bracket.
TABLE 2 Time Tax PV
Period Amount Adjustment Factor PV
Business use at 10%
Annual Tax Savings 1-7 $ 749 100% 4.87 $3,648
Depreciation Recapture 8 $(2,695) 28% 0.47 $(355)
Net Present Value $3,293
Business use at 20%
Annual Tax Savings 1-7 $ 1,499 100% 4.87 $7,300
Depreciation Recapture 8 $(5,390) 28% 0.47 $(709)
Net Present Value $6,591
Business use at 30%
Annual Tax Savings 1-7 $ 2,249 100% 4.87 $10,953
Depreciation Recapture 8 $(8,085) 28% 0.47 $(1,064)
Net Present Value $9,889
Business use at 40%
Annual Tax Savings 1-7 $ 2,998 100% 4.87 $14,600
Depreciation Recapture 8 $(10,780) 28% 0.47 $(1,419)
Net Present Value $13,181
Summary
This very brief excerpt used the home office deduction to illustrate time value of money considerations and permanent tax savings associated with the home office deduction. They result from a simple fact pattern, selected and designed to correct misconceptions. Specifically, the issue of depreciation recapture was explored. However, this framework may be used to examine a variety of tax planning fact patterns. Copy or print out this very brief article and discuss these results with your tax accountant.
Feel free to publish or reproduce anywhere, as long as you provide a copy to and/or notify the author
HTTP = HTML link (for blogs, profiles,phorums):
<a href="http://www.actual4u.com/article/118951/actual4u-Deducting-the-Home-Office-Who-Cares-About-Recapture.html">Deducting the Home Office: Who Cares About Recapture?</a>
BB link (for phorums):
[url=http://www.actual4u.com/article/118951/actual4u-Deducting-the-Home-Office-Who-Cares-About-Recapture.html]Deducting the Home Office: Who Cares About Recapture?[/url]
Related Articles:
Get a Debt Consolidation Loan Without Owning a Home
Bookmark it:
|