Are Blogging Expenses Deductible?

Yes. Like any other business, if you generate revenues from your blog(s) and live in the United States you are required to report the income generated from your blogging activities. Therefore, you are entitled to deduct all “ordinary and necessary” expenses related to that venture. However, it is important that you have your expenses well documented.

Here are examples of deductions you may be entitled to deduct against your blogging income:

• Internet related expenses – hosting fees, domain name registration fees and blogging software.
• Computer equipment – computer, laptop, Ipad, web camera, digital camera, and software.
• Communications-related equipment used to run your blog – fax machine and cell phone.
• Office equipment – desk, chair, and file cabinets.
• Office space related expenses – rent and utilities.
• Office supplies – business cards, paper, folders, stamps and stationery.
• Advertising – logo and letterhead designs, promotional give-aways, and SEO services.
• Travel & entertainment – conference fees, and hotel, and dinning while traveling away related to your blog.
• Professional associations and subscriptions – books, magazines, website memberships, and professional association dues.
• Professional fees – lawyer and accountant.

The key to your success in deducting your blogging expenses is to have organized records. It may seem to you that you are not spending a lot on your blogging endeavours. However, the reality is that blogging costs and if you are making income from your blogging, you might want to offset some of that with the help of tax breaks for your costs.

Why I Dislike Income Tax Refunds

This is the time of the year when American families are anxiously waiting for their income tax refunds. According to IRS information (source: Washinton Post March 22, 2012) through March 10, the IRS has issued 59.2 million refund checks totaling $174.4 billion. That is approximately $3,000 tax refund per check.

If you are proud of the tax refund you received or anxiously waiting for your tax refund to be spent on your big plasma TV, I have some bad news for you. Although most people love getting tax refunds, a refund typically means you wasted your money. All you have done is give the government an interest-free loan. Therefore, Americans receiving a refund should be upset and not happy.

In simple terms, when a person receives a tax refund it means that he missed opportunities during the year to bring that cash home and make that cash produce for him. Instead he lent the money interest-free to the government, who happily returns now returns a portion to you. The problem is that the money was always yours and the government has had the benefit throughout the year of spending and investing your money and gives you no return in your investment. It is the worse savings or investment program you can have. Still, it is difficult to make people understand this concept, income tax refunds are bad for your personal finances.

$3,000 a year translate to $250 per month more in your family finances. If you take the $250 extra per month and invest in a Roth IRA that grows at 8% for a period of 10 years you will have a little over $46,000. Instead of giving you hard earned money to the government interest free, you take the extra $250 and place it in an Roth IRA for 20 years you will have approximately $148,000. The power of compounding. In my example I have not taken into consideration adjustments in your monthly deposits to adjust for inflation. I kept it at $250 per month. The good news is that the money you deposited and the growth is all yours. You won't have to give the IRS one penny of it. Special IRS rules applies to these accounts, therefore it is important to you consult with a tax professional to help you.

The above example is only one of many ways to you could put money work better for you. If you are still insisting in receiving a tax refund, I have a great offer for you. I will give you the same deal that the government offers. So to the readers of my blog, who still believe that receiving a refund is better, they can send me their money and I promise I will send іt back tο уου next year starting March 15, 2013, of course without interest. I know you are thinking that this is a silly proposition, but this is exactly what it is done every year.

Beware of Bogus EFTPS Email Scams

The IRS is advising employers to be aware of a bogus e-mail scam involving payments allegedly rejected by the Electronic Federal Tax Payment System (EFTPS). The e-mail contains a link that, if clicked on, may result in the download of malicious software. The software is often designed to provide the scammer with personal and financial information on the employer's computer that the scammer may use to commit identity theft.

Remember: The IRS does not initiate e-mail communication with taxpayers regarding EFTPS or tax account matters. All unsolicited e-mails that claim to be from either the IRS or any other IRS-related area, such as EFTPS, should be reported to: phishing@irs.gov. 

Read More

Tax Reprieve For Spouses

The Internal Revenue Service just made it easier for some individuals to free themselves of liability for a spouse's tax debt. Last week, the IRS eliminated a rule that disqualified taxpayers from the "innocent spouse" relief program if more than two years had passed since the agency first sent collection notices to their spouses.

But there are some caveats. Read More

For more information on the innocent-spouse rule, see IRS Publication 971, Form 8857 or news release IR-2011-80

Understanding The Health Insurance Deduction for Self Employed

Many years taxpayers miss potential tax deductions that could save them hundreds of dollars in overpaid taxes. Today I want to bring to you attention one tax deduction that many self-employed entrepreneurs missed this year; the special provision for health insurance deduction of 2010. The Small Business Jobs and Credit Act of 2010, provided a one-year tax provision where self-employed (sole proprietorship, single-member LLC, or sole-owner S-corp), can deduct their health insurance expenses for 2010 against their self-employment tax. This will make a huge difference for self-employed entrepreneurs in lowering their taxes for the 2010 tax year. This provision addresses a fundamental unfairness against the self-employed and the treatment of the health insurance costs; self-employed individuals cannot deduct the full cost of health insurance premiums as a business expense on their payroll taxes, as other business entities can do.

This is a special rule for 2010 only. For 2011 and later years, the health insurance deduction will revert back to being deducted only against the income tax, unless Congress decides to extend this particular tax break.

Here is an example on how this tax provision will affect self-employed this year:

Let's say Sandy, a freelancer, makes $60,000 in net income and pays $6,000 for health insurance. In other tax years, Sandy would pay income tax on $54,000 and self employment tax on $60,000. However, in 2010 Sandy will pay income tax and self employment taxes on $54,000. This provides Sandy a tax saving of $459 in her 2010 income tax return.

Make sure to ask your tax preparer about taking the deduction when you file your tax returns next year. If you have already filed, have your tax return reviewed to determine if the deduction was missed (you may have to file an amended tax return to claim the missed deduction). Here are a couple of caveats:

1. You must buy your own insurance (rather than relying on a spouse's coverage or being uninsured).

2. The deduction phases out above a $106,800 annual income limit.

3. The provision is specifically geared for those who file a 1040 Schedule C business income tax form or a Schedule E earned income tax form.

4. If you are reporting a loss from your self-employed activity, then you are not eligible to deduct your health insurance costs since this particular deduction is limited by your self-employment income. You can however still claim the health insurance expenses as an itemized medical deduction on your Schedule A.

5. The new deduction does not apply to health insurance coverage that you may provide for any employees you have.

For more information on that tax credit is available at the IRS website.

Tax Changes That Will Affect Your 2010 Tax Filing

Here are some of the changes that will affect you as you prepare your 2010 tax returns:

1) Taxpayers, nationwide, will have until Monday, April 18, 2011, to file their 2010 returns and pay any taxes due. Taxpayers get the extra time because Emancipation Day, a holiday in the District of Columbia, is observed this year on Friday, April 15. By law, D.C. holidays impact tax deadlines in the same way that federal holidays do. The April 18 deadline applies to any return or payment normally due on April 15. It also applies to the deadline for requesting a tax-filing extension and for making 2010 IRA contributions.

2) Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. They include state and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes.

3) A provision available through the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner age 70½ or over can directly transfer, tax-free, up to $100,000 per year to eligible charities.

4) Overall income limits for personal and dependency exemptions and itemized deductions do not apply. Before 2010, taxpayers whose incomes were above certain levels lost part or all of their exemptions and part of their itemized deductions. For taxpayers at all income levels, limitations continue to apply to particular itemized deductions, such as medical and dental expenses, certain miscellaneous itemized deductions and casualty and theft losses.

5) The maximum adoption credit for 2010 is increased to $13,170 per child, up from $12,150 in 2009. The credit is refundable, meaning that eligible taxpayers can get the credit even if they owe no tax. In general, the credit is based on the qualified adoption expenses, which include adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply.Because of these documentation requirements, taxpayers claiming the adoption credit will have to file paper tax returns. Normally, it takes six to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached.

6) Eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

7) Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child, under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

8) Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS. A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010.

10 Ways To Reduce Tax Burden For Your Small Business

Everyone worries about taxes and looks for ways and means of reducing the tax burden. When you have a small business of your own you must up date your knowledge of tax laws that pertain to “small businesses.” As a business owner you must understand clearly about accounting systems and tax planning. Sit down with your accountant and plan on ways of maintaining business expenses, filing receipts, planning on “tax saving” investments, and a strategy for running the business in the most beneficial way.
Did you know that:

1. According to law you can reduce your tax liability by hiring family members to carry out work in your business. Pay your children and spouse to perform assigned duties. This way you can shift from higher tax rates to lower ones.

2. Consider hiring independent contractors instead of employees. You will save on payroll taxes. However ensure that you meet the IRS’s criteria.

3. Think about “deferring income” postpone receiving money to January instead of December. This means that payments received will be up for “tax” calculations a year away. However ask your accountant’s advice as the benefits are dependant on profit and losses for the year and your corporate legal structure.

4. Take advantage of tax deductions allowed for charitable donations. Make donations in November or December instead of January so that you can include the donations for tax deductions in the current year.

5. Maximize your expenditure on equipment and office supplies. Buy in advance for a quarter and use the tax deductions allowed in the current fiscal year.

6. Include expenses of business related travel in the current year.

7. Pay all bills due before the end of the year. Payment to cell services, rent, insurance, and utilities related to the business can be included for accounting and applicable tax waivers.

8. Plan a retirement plan and make payments before the end of the year. This will reduce your income for the year and proportionately the tax due. Be sure to check on the limits. Plan a feasible and beneficial strategy with your accountant.

9. Be sure to deduct from your taxable income money paid to licensing fees, businesses taxes, and annual memberships to businesses related organizations. Be sure to deduct interest paid on borrowings for running the business and related fees. Insurance premiums paid to insure the business office and machinery are eligible for tax deductions. Make a list of your memberships and check which ones are eligible for tax deductions.

10. Check whether you have deducted management and administration expenses as well as money spent on maintenance and repairs of equipment.

Decide whether a cash accounting system or accrual one will benefit your business. The tax deductions are different depending on the system you use. When setting up your small business take the advice of a tax and accounting professional as to which accounting system would be most suitable.

The Most Overlooked Deductions

If you are like millions of Americans who throws all of their receipts, credit card and bank statements into a box and run to their tax preparers in the hope that they will be able to go through ALL your stuff and absorb all the information through osmosis, then you are likely to overlook hundreds of dollars in tax deductions when the time comes to prepare your tax returns. You cannot blame them, many times they are charging as low as $50 to prepare your tax returns. It is impossible for someone that was not with you all year to go through your box and in a matter of minutes be able to complete your tax return with all of your deductions. I do not care how many checklists they may have to collect your data.

Here is some information you may want to know:

· The most recent numbers show that about 46 million Americans itemized deductions in their 1040s. This group claims approximately 1 Trillion dollars worth of deductions. Astonishing isn’t it?
· Another 85 million Americans claimed more than 500 Million dollars worth of “standard deductions”. Some of these people shortchanged themselves to take the easy way out.

Here is your chance to claim a piece of that Trillion dollar pie. The secret is in your documentation, keep good records. Suggestion: buy a file cabinet (a deduct the cost of it as part of your business expenses or tax preparation costs) and start organizing your receipts for 2009. If you do not have time to do it, then hire someone part-time to do it (and deduct the cost). You can hire a youngster very inexpensively to sort through your receipts. Claim your deductions if you deserve them, and keep more money in your pocket. Don’t overpay taxes by overlooking tax deductions.

1. Accounting fees for tax preparation services, advice and IRS audits, including tax software if you meet the limits.
2. Alcoholism and drug abuse treatment.
3. Amortization of premium on taxable bonds.
4. Appraisal fees for charitable donations or casualty losses.
5. Appreciation on property donated to a charity.
6. Casualty or theft losses.
7. Cellular telephones required for business.
8. Cleaning and laundering services when traveling.
9. Commissions and closing costs on sale of property.
10. Contact lenses, eye glasses, and hearing devices.
11. Contraceptives, if bought with a prescription.
12. Costs associated with looking for a new job in your present occupation, including fees for resume preparation and employment of outplacement agencies.
13. Depreciation of home computers.
14. Dues to labor unions.
15. Education expenses to the extent required by law or your employer or needed to maintain or improve your skills.
16. Employee contributions to a state disability fund.
17. Employee's moving expenses.
18. Federal estate on income with respect to a descendent.
19. Fees for a safe-deposit box to hold investments.
20. Fees paid for childbirth preparation classes if instruction relates to obstetrical care.
21. Foreign taxes paid.
22. Foster child care expenditures.
23. Gambling losses to the extent of gambling gains.
24. Hospital services fees (laboratory work, therapy, nursing services, x-rays, and surgery).
25. Home office expeneses, if your home is your primary place of business.
26. Impairment-related work expenses for a disabled individual.
27. Improvements to your home.
28. Investment advisory fees.
29. IRA trustee's administrative fees billed separately.
30. Lead paint removal.
31. Legal abortion expenses.
32. Legal fees incurred in connection with obtaining or collecting alimony.
33. Margin account interest expense.
34. Medical aids such as crutches, canes, and orthopedic shoes.
35. Medical transportation, including standard mileage deduction and lodging expenses incurred for medical reasons while away from home.
36. Mortgage prepayment penalties and late fees.
37. Nursing home expenses that are primarily for medical expenses.
38. Out-of-pocket expenses relating to charitable activities, including the standard mileage deduction.
39. Part of health insurance premiums if self-employed.
40. Penalty on early withdrawal of savings.
41. Personal liability insurance for wrongful acts as an employee.
42. Points on a home mortgage and certain refinancings.
43. Protective clothing required at work.
44. Real estate taxes associated with the purchase or sale of property.
45. Reservist and National Guard overnight travel expenses.
46. 50% of self-employment tax.
47. Seeing-eye dogs for the handicapped or guard dogs for a business.
48. Seller-paid points on the purchase of a home.
49. Services of a housekeeper, maid, or cook needed to run your home for the benefit of a qualifying dependent while you work.
50. Special equipment for the disabled.
51. Special schools and separately stated feed for medical care included in tuition.
52. State personal property taxes on cars and boats.
53. State sales taxes – this write off makes sense primarily for those who live in states that do not impose a state income tax.
54. Student loan interest – even if paid by the parents (you cannot be claimed as a dependent by your parents)
55. Subscriptions to professional journals.
56. Theft of embezzlement losses.
57. Trade or business tools with life of year or less.
58. Uniforms and work clothes not suitable for street wear.
59. Union dues
60. Worthless stock or securities.

First Time Home Buyer Tax Credit – What Does It Mean For You?

There has been some confusion lately with the First Time Home Buyers Tax Credit. This has been caused by the fact that there are two tax credits that has been enacted in less than a year. Here I will give you a quick summary of both.

The Housing and Economic Recovery Act of 2008

· Authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before January 1, 2009. This is in essence an interest-free loan.
· The credit is equal to 10% of the purchase price of the home , up to $7,500.
· Only first time home buyers can qualify for this credit as defined by this act. The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
· The income limit for single tax payers is $75,000, and the credit dissapears once the modified adjusted gross income reaches $95,000. For married couples the limit is $150,000, and the credit dissapear once the modified adjusted gross income has reached $170,000.
· Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence. This includes single-family detached homes, townhomes, condos, manufactured homes and houseboats, within the United States.
· You receive your credit when you file your tax return.
· Tax credit must be paid back to the government over a period of 15 years. The repayment starts in the second year after the tax year that the home was purchased. So, If you purchased your home in 2008, you will begin repayment when you file your 2010 tax return. Your payments are set at $500 per year for 15 years.
· A word of caution: If you sell the house or no longer the home as your principal residence before the end of the 15 years, you will pay the balance remaining on the credit on the tax return for the year of the change of use or sale.

American Recovery and Reinvestment Act of 2009
· The amount of the credit is $8,000 for primary residences purchased by first time home buyers during the period of January 1, 2009 and November 30, 2009.
· Credit does not have to be repaid, as long as the house is not sold within three years. Unfortunately, those who purchased their homes in 2008 are elegible to $7,500 tax credit and it must be repaid.