Real Estate Newsline, by Fred Flores, January 15, 2007
It is that time of the year again; time to start thinking about doing your taxes for 2006. I am a CPA and Real Estate Broker. In a two part article, I will first discuss some common tax deductions and then I will discuss some new tax law changes that may apply to you.
Your automobile expense deduction is probably your single largest deduction. You can elect to deduct the actual expenses incurred (this would include gas, rent or lease payments, depreciation, insurance, tires, and oil) for the business-related portion of your auto or simply take the 2006 standard mileage of 44.5 cents per business mile. This election is made in the first year you use your auto for business.
Most of your business related taxes you pay are deductible from your taxable income. You may be able to deduct personal property taxes on business assets, employer share of Social Security and Medicaid taxes on employee wages, federal unemployment taxes, sales taxes and real estate taxes.
Your home office may offer you some tax advantages. You may deduct some of your mortgage interest paid, real estate property taxes, home insurance as well as some of the maintenance and repair expenses associated with the property. The cost of utilities and business supplies associated with the business use of are also deductible. The part of your home that is used exclusively for the business divided by the home’s total square footage is used to determine the business percentage.
Meals and Entertainment are only 50 percent deductible that are directly associated with your business.
You may be able deduct professional fees, such as those paid to a CPA or lawyer.
Depreciation may be taken on passenger cars, equipment (cell phones, copiers and computers). Basically any assets purchased for the use of your business may be depreciated or written off (Section 179 Depreciation deduction).
You may be able to deduct 100% of health insurance premiums as an adjustment to income on your tax return. This deduction is limited to your net profit. You may also be able to open a Healthcare Spending Account (HSA). With an HSA you do not pay taxes on medical cost paid from this plan.
There a many tax options to fund your retirement as a self employed person. While the options are many, they are one of your most important tools. You can choose between 401(k), SEP (Simplified Employee Pension) plans, SIMPLE plans or Qualified plans. Each plan has unique qualifications, funding limits and tax treatment of contributions and distributions. Please review your plan options at the beginning of each tax year.
There are many tax law changes for 2006.
The limits have increased for the Hope Credit. The maximum Hope Credit has increased to $1650. This is 100% of the first $1,100 of qualified education expenses and 50% of the next $1,100 of qualified education expenses.
The maximum Health Savings Account (HSA) deduction has increased to $2,700 ($5,450 for family coverage). The maximum additional deduction for individuals 55 or older has increased to $700.
The standard deduction for most people will be higher in 2006. The actual amount will depend on your filing status, how old you are and can you be claimed as an exemption on someone else’s tax return.
The amount that you can deduct for each personal exemption has increased to $3,300. The exemption amounts are subject to phase out depending on your income levels and filing status.
You may be able to take a credit equal to the sum of 10% of the amount paid in 2006 for qualified energy efficiency improvements installed during 2006 and any residential energy property costs paid in 2006. There is a limit on the amount of the credit. The credit is limited to $500 for all tax years and there is an accumulated credit limit of $200 for windows. The credit limit for residential property costs for all tax years of $50 for any advanced main air circulating fan:$150 for any qualified natural gas, propane or oil furnace or hot water boiler; and $300 for any item of energy efficient building property.
Beginning in 2006, the maximum adoption credit has increased to $10, 960. This amount is subject to phase out based on your income and filing status.