This time of year three questions are crossing a lot of people's minds: When will spring arrive? Who deserves an Oscar? And how will I ever get my taxes done?
This last question is especially important to home-based workers because a number of special rules apply to them. A simple oversight can result in paying more tax than is owed or incurring fines for improper filing.
Unfortunately, filing oversights are common because IRS guidelines change from year to year. This means that deductions you took last year may no longer be available or that you may be eligible for new or increased deductions.
To make the process of tracking these changes a little easier, I've compiled a list of a few changes that may impact you. Speak with your accountant to find out how these adjustments, as well as others, will affect your 1999 return.
-Business equipment. You may be able to expense up to $19,000 of equipment cost for items purchased in 1999, which marks an increase of $500 from 1998. The definition of business equipment includes computers, fax machines, phone systems and other fixed assets.
Another option is to deduct the equipment cost over several years via the tax code's depreciation schedules. Speak with your accountant about the best strategy for your situation.
-Home office. As of this year, the IRS allows taxpayers to treat a home office as a principal place of business if it is used for substantial administrative or management activities, and if no other fixed location is used for such activities. If your home office qualifies under this definition, related expenses may be deductible.
A word of caution: The home-office deduction tends to be noticed. If you plan to claim it, check carefully to be sure you meet eligibility tests. For example, if you run a sideline business from a household common area that is also used for family television, you may not qualify.
-Health insurance. If you are self-employed or a more than 2 percent shareholder of an S-corporation, you can deduct up to 60 percent of 1999 health insurance payments paid to cover you, your spouse and dependents. This marks an increase from 45 percent in 1998.
The portion that you cannot deduct can be added to your itemized medical expenses, which may make your remaining medical expenditures fully deductible by raising you over the threshold for claiming medical deductions, currently 7.5 percent of gross income.
Be sure to include expenses such as dental care, eye care, contact lenses and prescriptions in your calculations.
-Business travel. If you use a car for business, you can choose from two methods to deduct business-use charges. The most common method is to calculate distance traveled by the amount per mile that the IRS allows for business travel. This amount dropped at the end of March 1999 from 32.5 to 31 cents per mile. Use the 32.5-cent figure to calculate deductions for the first three months of 1999 and the lower figure for miles traveled on or after April 1, 1999.
Alternatively, you can itemize travel expenses and take a depreciation deduction on the cost of your vehicle and then add to that the costs of running and maintaining your car. These costs may include gas, parking fees, tolls, repairs and insurance premiums. You can switch between methods from year to year, so it may pay to calculate both and choose the one that provides the greatest deduction.
If you need additional information about these tax guidelines and others, take a look at the "American Express Tax Guide 2000," published by American Express Publishing Corp. You can order it from online bookstores such as Amazon.com or from the American Express Small Business Exchange at www.americanexpress.com/smallbusiness.
Alice Bredin is author of the "Virtual Office Survival Handbook" (John Wiley & Sons) and a nationally syndicated columnist.
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