Keep More of What You Earn

Entrepreneurs

Keep More of What You Earn

HEALTH INSURANCE
On 2007 tax returns, self-employed taxpayers can deduct 100 percent of their health insurance costs.

RETIREMENT PLANS
The rules governing eligibility, contribution limits, and deadlines vary depending on whether you have an IRA, SEP, Keogh, or 401(k) plan. But one thing is for sure: contributing to a qualified retirement plan is a great way to reduce your tax bill and save for your future.

BUSINESS USE OF CAR
If you use your car for business, you can deduct certain expenses. You can maintain records of your actual expenses, such as gas, oil, repairs, insurance, and depreciation, or you can use the IRS’ standard mileage rate of 48.5 cents per business mile for 2007. Parking and tolls are fully deductible regardless of which method you choose.

FAMILY EMPLOYEES
Self-employed business owners can reduce their overall income tax liability by hiring their children to help out. For 2007, your child could have earned up to $5,350, tax-free.

Hiring your child shifts income from a higher to a lower tax bracket, and the salary gets deducted as a business expense, as long as the work done by your child is bona fide.

SECTION 179 EXPENSING DEDUCTION
When you buy new or used computers, copiers, software, office furniture, or other business property you can deduct 100 percent of the cost in the year it is placed in service rather than depreciating it over a number of years. For 2007, the expensing deduction is set at $112,000, (adjusted for inflation) and phases out dollar for dollar when total purchases for the year exceed $450,000.

TRAVEL AND MEAL EXPENSES
The cost of travel by plane, train or auto and your lodging is 100 percent deductible as long as the travel was related to business. You also may deduct 50 percent of the cost of your meals while traveling.

BUSINESS EXPENSES
Ordinary and necessary business expenses can be deducted. Deductible expenses include advertising and promotion, bank service fees, office supplies, interest on business credit cards and loans, subscriptions for magazines and journals related to your profession, postage, uniforms or special work clothing, and more.

HOME OFFICE
To deduct expenses related to a home office, you must prove that the home office was (1) used exclusively and on a regular basis either as a place of business to meet with clients in the normal course of business or (2) it is used for management and administrative activities of your business and you have no other fixed location where you can do a substantial amount of such administrative work.

GOOD RECORDS
Keeping well-organized and accurate records will simplify the task of preparing your tax return and protect your deductions should your return be subject to an audit.